<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Quarter Ended September 30, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

   For the transition period from ____________ to ______________
       Commission File number 000-26287

                          RAVISENT Technologies Inc.
            (Exact Name of Registrant as Specified in Its Charter)




               Delaware                                      23-2763854
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                   Identification Number)



                           257 Great Valley Parkway
                          Malvern, Pennsylvania 19355

                          ___________________________

                   (Address of Principal Executive Offices)
      Registrant's Telephone Number, Including Area Code: (800) 700-0362

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                   Yes X  No
                             ---------------------

On November 9, 2001, 19,052,547 shares of the Registrant's Common Stock, $.001
par value, were outstanding.

                                       1
<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                      Page
<S>                                                                                                   <C>
Part I:      Financial Information

Item 1:      Financial Statements


             Consolidated Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000        3

             Consolidated Statements of Operations for the three months ended September 30, 2001        4
             and 2000  (unaudited).

             Consolidated Statements of Operations for the nine months ended September 30, 2001         5
             and 2000  (unaudited).

             Consolidated Statements of Cash Flows for the nine months ended September 30, 2001         6
             and 2000  (unaudited).

             Notes to Consolidated Financial Statements                                                 7

Item 2:      Management's Discussion and Analysis of Financial Condition and Results of                22
             Operations

Item 3:      Quantitative and Qualitative Disclosures About Market Risk                                40

Part II:     Other Information

Item 1:      Legal Proceedings                                                                         57

Item 2:      Changes in Securities                                                                     58

Item 3:      Defaults upon Senior Securities                                                           58

Item 4:      Submission of Matters to a Vote of Security Holders                                       58

Item 5:      Other Information                                                                         58

Item 6:      Exhibits and Reports on Form 8-K                                                          59
</TABLE>

                                       2
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

PART I
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                 September 30,         December 31,
                                                                                                     2001                  2000
                                                                                                 ----------------------------------
                                                                                                  (unaudited)
<S>                                                                                              <C>                      <C>
ASSETS
Current assets:
  Cash and cash equivalents, including restricted cash of  $2,600 in 2001 and $1,806
   in 2000............................................................................             $ 56,405              $  9,615
 Accounts receivable, net of allowance for doubtful accounts of $179 in 2001 and
  $2,405 in 2000......................................................................                  645                 5,901
 Inventories, net.....................................................................                8,078                20,883
 Prepaid expenses.....................................................................                  772                   963
 Loans receivable - officers..........................................................                  556                   662
 Deferred acquisition costs...........................................................                2,233                     -
 Other current assets.................................................................                  797                   547
                                                                                                 -----------             ---------
   Total current assets...............................................................               69,486                38,571

 Furniture and equipment, net.........................................................                1,450                 3,995
 Goodwill and other intangibles, net of accumulated amortization of $1,014 in 2001
  and $7,425 in 2000..................................................................                4,727                17,530
 Loan receivable-officer.............................................................                    -                    25
 Note receivable-eMation.............................................................                2,516                     -
 Other assets.........................................................................                   12                    72
                                                                                                 -----------             ---------
   Total assets.......................................................................             $ 78,191              $ 60,193
                                                                                                 ===========             =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable.....................................................................             $  2,372              $ 11,088
 Accrued expenses.....................................................................                5,336                 2,147
 Income taxes payable.................................................................                1,075                     -
 Deferred revenue.....................................................................                  369                 1,473
 Other current liabilities............................................................                   46                   657
                                                                                                 -----------             ---------
   Total current liabilities..........................................................                9,198                15,365

Non-current liabilities:
 Deferred tax liability...............................................................                  564                     -
                                                                                                 -----------             ---------
  Total liabilities...................................................................                9,762                15,365
                                                                                                 -----------             ---------

Commitments and contingencies (note 9)

Stockholders' equity:
 Preferred stock, $.001 par value; 5,000,000 shares authorized in 2001 and 2000, none
  issued or outstanding; Common stock, $.001 par value 50,000,000 authorized;
  19,247,427 shares issued in 2001 and 17,594,429 in 2000.............................                   19                    17
 Additional paid-in capital...........................................................              123,671               121,330
 Deferred stock compensation..........................................................               (1,487)               (3,241)
 Accumulated deficit..................................................................              (52,714)              (72,380)
 Accumulated other comprehensive income...............................................                 (192)                 (178)
 Treasury stock at cost, 297,800 shares...............................................                 (868)                 (720)
                                                                                                 -----------             ---------
   Total stockholders' equity.........................................................               68,429                44,828
                                                                                                 -----------             ---------
   Total liabilities and stockholders' equity.........................................             $ 78,191              $ 60,193
                                                                                                 ===========             =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                             Quarter Ended September 30,
                                                                              2001                  2000
                                                                           (unaudited)           (unaudited)
<S>                                                                        <C>                   <C>
Revenues:
   License..............................................................   $       571           $     3,318
   Services.............................................................             -                   435
   Hardware.............................................................           270                   475
                                                                           -----------           -----------
Total revenues..........................................................           841                 4,228
                                                                           -----------           -----------
Cost of revenues:
   License..............................................................           207                   676
   Services.............................................................             -                   110
   Hardware.............................................................           303                   477
                                                                           -----------           -----------

Total cost of revenues..................................................           510                 1,263
                                                                           -----------           -----------

Gross profit............................................................           331                 2,965

Research and development
   Non-cash compensation................................................           228                    95
   Other research and development expense...............................         1,084                 2,686
Sales and marketing
   Non-cash compensation and other expense..............................            18                 1,525
   Other selling  and marketing expense.................................         1,075                 4,298
General and administrative
   Non-cash compensation................................................           275                    71
   Other general and administrative expense.............................         2,620                 2,086
   Provision for doubtful accounts......................................             -                    96
Depreciation and amortization...........................................           358                 1,489
Acquired in-process research and development............................             -                 1,373
                                                                           -----------           -----------
     Operating loss.....................................................        (5,327)              (10,754)

Interest (income) expense, net..........................................          (520)                 (433)
                                                                           -----------           -----------
Loss before income taxes (benefit)......................................        (4,807)              (10,321)

   Provision for income taxes (benefit).................................          (685)                    7
                                                                           -----------           -----------

Net loss................................................................   $    (4,122)          $   (10,328)
                                                                           ===========           ===========
Basic and diluted net loss per weighted average common share
outstanding.............................................................   $      (.22)          $     (0.61)
                                                                           ===========           ===========

Weighted average number of common shares outstanding used in
calculation of basic and diluted net loss per share.....................    18,720,363            16,834,358
                                                                           ===========           ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                                              2001                   2000
                                                                           (unaudited)            (unaudited)
<S>                                                                        <C>                     <C>
Revenues:
   License..............................................................   $     3,607            $     9,272
   Services.............................................................           407                    701
   Hardware.............................................................           437                  4,811
                                                                           -----------            -----------

Total revenues..........................................................         4,451                 14,784
                                                                           -----------            -----------

Cost of revenues:
   License..............................................................         1,162                  2,425
   Services.............................................................            94                    410
   Hardware.............................................................           444                  4,412
   Inventory Charge.....................................................        13,420                      -
                                                                           -----------            -----------
Total cost of revenues..................................................        15,120                  7,247
                                                                           -----------            -----------

Gross profit............................................................       (10,669)                 7,537

Research and development
   Non-cash compensation................................................         2,082                    257
   Other research and development expense...............................         4,490                  7,799
Sales and marketing
   Non-cash compensation and other expense..............................            87                  2,027
   Other selling  and marketing expense.................................         5,409                  8,836
General and administrative
   Non-cash compensation................................................           387                    167
   Other general and administrative expense.............................         6,497                  7,654
   Provision for doubtful accounts......................................           784                    186
Depreciation and amortization...........................................         2,413                  4,230
Acquired in-process research and development............................             -                  1,373
                                                                           -----------            -----------

     Operating loss.....................................................       (32,818)               (24,992)

Gains on sales of assets................................................        52,037                      -
Interest (income) expense, net and other (income).......................        (1,567)                (1,647)
                                                                           -----------            -----------

Income (loss) before income taxes.......................................        20,786                (23,345)
   Provision for income taxes...........................................         1,123                     44
                                                                           -----------            -----------

Net income (loss).......................................................   $    19,663            $   (23,389)
                                                                           ===========            ===========
Basic net income (loss) per weighted average common share
outstanding.............................................................   $      1.09            $     (1.45)
                                                                           ===========            ===========
Diluted net income (loss) per weighted average common share
outstanding.............................................................   $      1.01            $     (1.45)
                                                                           ===========            ===========
Weighted average number of common shares outstanding used in
calculation of basic net income (loss) per share........................    17,982,817             16,137,474
                                                                           ===========            ===========
Weighted average number of common shares outstanding used in
calculation of diluted net income (loss) per share......................    19,450,774             16,137,474
                                                                           ===========            ===========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended September 30,
                                                                                  -------------------------------
                                                                                       2001             2000
                                                                                  -------------------------------
                                                                                   (unaudited)       (unaudited)
<S>                                                                               <C>                <C>
Cash flows from operating activities:
 Net income (loss)............................................................         $ 19,663         $(23,389)
 Adjustments to reconcile net income (loss) to net cash used in operating
 activities:
  Depreciation and amortization...............................................            2,413            4,230
  Gain on sales of assets.....................................................          (52,037)               -
  Non-cash compensation and other expenses....................................            2,129            2,451
  Deferred income taxes.......................................................              564                -
  Provision for doubtful accounts.............................................           (2,226)              27
  Provision for inventory.....................................................           13,420              (63)
  Acquired in-process research and development................................                -            1,373

Changes in items affecting operations (excluding the sales of the assets of
CE and IA businesses):
  Accounts receivable.........................................................            7,221            1,448
  Inventories.................................................................             (615)         (14,218)
  Loan receivable--officer....................................................             (173)             (67)
  Prepaid expenses and other current assets...................................           (1,540)            (779)
  Other assets and intangible assets..........................................             (690)               -
  Accounts payable............................................................           (8,579)           5,289
  Accrued expenses and other current liabilities..............................            2,947             (103)
  Income taxes payable........................................................            1,075                -
  Deferred acquisition costs..................................................           (2,233)               -
  Deferred revenue............................................................           (1,104)             369
                                                                                  -------------      -----------
Net cash used in operating activities.........................................          (19,765)         (23,432)
                                                                                  -------------      -----------

Cash flows from investing activities:
 Capital expenditures.........................................................             (392)          (2,580)
 Net proceeds from sales of assets............................................           68,112              131
 Note receivable..............................................................           (2,516)               -
 Proceeds from short-term investment..........................................                -            1,018
 Acquisition, net of cash acquired............................................                -           (2,613)
                                                                                  -------------      -----------
Net cash provided by (used in) investing activities...........................           65,204           (4,044)
                                                                                  -------------      -----------

Cash flows from financing activities:
 Repayments under capital lease obligations...................................              (30)             (30)
 Note receivable..............................................................                -              500
 Net proceeds from exercise of stock options and warrants.....................            1,523              759
 Repurchase of common stock...................................................             (148)               -
 Repayments under other liabilities...........................................                -             (441)
                                                                                  -------------      -----------
Net cash provided by financing activities.....................................            1,345              788
                                                                                  -------------      -----------

Effect of exchange rate changes on cash and cash equivalents..................                6              (48)
                                                                                  -------------      -----------

Net increase (decrease) in cash and cash equivalents..........................           46,790          (26,736)
Cash and cash equivalents, including restricted cash:
 Beginning of period..........................................................            9,615           48,251
                                                                                  -------------      -----------
 End of period................................................................         $ 56,405         $ 21,515
                                                                                  =============      ===========

Supplemental disclosure of cash flow information:
Cash paid during the year for:
  Interest....................................................................         $      1         $     28
  Income taxes................................................................                -                -
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to September 30, 2001 and 2000 is unaudited)

     Unaudited Interim Financial Statements

     The interim consolidated financial statements of the Company for the nine
months ended September 30, 2001 and 2000 included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements. In the opinion of management, the accompanying unaudited
interim consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company at September 30, 2001 and
2000, the results of its operations for the three and nine months ended
September 30, 2001 and 2000 and its cash flows for the nine months ended
September 30, 2001 and 2000. The unaudited consolidated financial statements
included in this Form 10-Q should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in the Company's
Form 10-K for the year ended December 31, 2000.

1)   Summary of Significant Accounting Policies

     a)  Description of Business (Note 12)

     RAVISENT Technologies Inc. ("the Company"), which changed its name from
Divicore Inc. in June 1999 and from Quadrant International, Inc. in May 1999,
designs, develops, licenses and markets core-based modular software solutions
that enable digital video and audio stream management in personal computer
systems. In March 2001, the Company sold the assets of its consumer electronics
business and its Internet appliance business (note 12). The Company also
provides supporting hardware designs to selected customers as well as
customization services and customer support. The Company's solutions enable
decoding (playback) and encoding (recording) of multimedia formats such as
digital versatile disk (DVD), direct broadcast satellite (DBS) and high-
definition television (HDTV) on existing personal computers and, during 2000,
consumer electronics platforms. The Company's customers consist principally of
personal computer manufacturers.

     During 2000, the Company's revenues were substantially generated from
selling digital video solutions and Internet appliance devices to personal
computer, consumer electronics, and Internet appliance original equipment
manufacturers. During 1999 and 1998 the Company's revenues were substantially
generated from selling hardware-based digital video solutions to personal
computer and consumer electronics original equipment manufacturers. The Company
changed its strategic focus during 1999 from selling hardware-based digital
video solutions to licensing its proprietary technology to provide software-
based digital video solutions primarily to personal computer and consumer
electronics original equipment manufacturers. In November of 1999, the Company
acquired Teknema Inc., which expanded the Company's product offerings to the
Internet appliance market. In August 2000, the Company acquired Cinax Designs
Inc., which enhanced the Company's digital video product line.

     The Company was incorporated in Pennsylvania in April 1994 and
reincorporated in Delaware as RAVISENT Technologies Inc. in 1999.

                                       7
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

     The Company has sustained significant net losses and negative cash flows
from operations since its inception. For the nine months ended September 30,
2001, the Company's net income was $19.7 million, which is attributable to gains
on the sales of assets of $52 million in March 2001 (note 12) and offset by
operating losses of $32.8 million. The Company plans on investing heavily in
product development, sales and marketing and to a lesser degree in operations
and administrative areas. There can be no assurances that the Company will be
able to generate sufficient revenues necessary to achieve or sustain
profitability in the short or long term. However, management believes that the
current cash and cash equivalent amounts will be sufficient to sustain the
Company's operations through September 30, 2002. See note 12 for sales of
assets.

     On June 28, 2001, the Company announced that it signed an agreement to
acquire all of the outstanding capital stock of eMation Ltd., a company
headquartered in Boston, MA. Under the terms of the transaction, RAVISENT has
offered to acquire from eMation's shareholders all of the issued and outstanding
shares of eMation for approximately 8 million shares of RAVISENT common stock
and the assumption of $5 million in debt. In addition, RAVISENT agreed to
provide up to $2.5 million of interim financing to fund operating expenses until
closing. The Company has also agreed to issue an additional 1.55 million shares
of RAVISENT common stock upon the exercise of eMation Stock options to be
assumed by the Company in the eMation acquisition. This transaction is subject
to customary closing conditions, including regulatory and RAVISENT shareholder
approval, and is currently expected to close during the fourth quarter of 2001.

     b)   Principles of Consolidation

     The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

     c)   Cash and Cash Equivalents

     For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.

     d)   Inventories

     Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method (FIFO). Inventory is net of reserves of
approximately $17,156,000 at September 30, 2001 and approximately $3,799,000 at
December 31, 2000.

     e)   Revenue Recognition

     The Company's primary revenue categories consist of software licenses for
personal computer ("PC") and consumer electronics ("CE") products, including
DVD; Internet appliance ("IA") products, including Internet browser software and
hardware reference designs; services for PC, CE and IA products, including non-
recurring engineering customization and development services; and hardware for
PC products, primarily DVD boards and IA products, including Internet set- top
boxes, and integrated circuit boards (note 11). The Company recognizes software
revenues in accordance with the American Institute of Certified Public
Accountants' (AICPA) Statement of Position 97-2, Software Revenue Recognition
(SOP 97-2). License revenues are recognized in the period in which the license
agreement is signed, the fee is fixed or

                                       8
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

determinable, delivery of the technology has occurred requiring no significant
production, modification or customization and collectibility is probable.
Royalties representing software license fees paid on a per unit basis are
recognized when earned, which is generally based on receiving notification from
licensees stating the number of products sold which incorporate the licensed
technology from the Company and for which license fees, based on a per unit
basis, are due. The terms of the license agreements generally require the
licensees to give notification to the Company within 45 to 60 days of the end of
the quarter during which the sales of the licensees' products take place. In a
number of cases, the revenue recorded by the Company will occur in the quarter
following the sale of the licensee's products to its customers.

     For software arrangements that include multiple elements, SOP 97-2 requires
the Company to allocate the fee to the individual elements based on vendor-
specific objective evidence of fair value ("VSOE"), regardless of the prices
stated within the contract. VSOE is limited to the price charged when the
element is sold separately or, for an element that is not yet sold separately,
the price established by management having the relevant authority. The Company
has not established VSOE for each of the elements in its multiple element
arrangements, as the Company has not offered each element for sale separately.
In cases where a license fee is associated with the delivery of multiple
elements and VSOE cannot be established for each of the individual elements, the
entire fee from the arrangement is deferred until the earlier of the
establishment of VSOE or the delivery of all the elements of the arrangement. In
cases where a license grants a customer unspecified upgrade rights, the license
fee is deferred and recognized ratably over the term of the arrangement. Billed
amounts due from the customers in excess of revenue recognized are recorded as
deferred revenue.

     Hardware revenues are recognized upon shipment of products to customers.
The Company's sales to original equipment manufacturers do not provide a right
of return unless in the event of manufacturing defect, which is the
responsibility of the Company's third party contract manufacturers.

     The Company recognizes services revenues in accordance with the provisions
of AICPA Statement of Position 81-1, Accounting for Performance of Construction-
Type and Certain Production-Type Contracts (SOP 81-1). Revenues related to
services are recognized upon delivery of the service in the case of time and
material contracts. Revenues related to development contracts involving
significant modification or customization of hardware or software under
development arrangements are recognized using the percentage-of-completion
method, based on the efforts-expanded method or based on performance milestones
specified in the contract where such milestones fairly reflect progress toward
contract completion. For software license arrangements that include services
requiring significant modification or customization of the licensed software,
the Company applies the percentage-of-completion method of contract accounting
to the entire arrangement. Losses on contracts are recognized for the entire
anticipated loss, if any, as soon as the loss becomes evident.

     f)   Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

     g)  Computation of Net Income (Loss) Per Share

                                      9
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

     The Company computes earnings per share in accordance with SFAS No. 128,
Earnings Per Share. In accordance with SFAS No. 128, basic earnings per share
("EPS") is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method), and the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the if-
converted method), if any. Under the treasury stock method, the dilutive effect
of options and warrants are weighted from the later of the beginning of the
period or the date of issuance. Common equivalent shares also consist of
contingently issuable shares, whose issuance is contingent upon the satisfaction
of certain conditions. If all necessary conditions are satisfied by the end of
the period, such shares are included in common equivalent shares as of the
beginning of the period. Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.

The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income:



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                           For the nine months ended September 30, 2001
                               (in thousands, except per share data)
--------------------------------------------------------------------------------------------------
                                              Income             Shares             Per-Share
                                            (Numerator)       (Denominator)           Amount
                                             ---------         -----------
--------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>                <C>
Net income                                     $19,663
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
Basic EPS
--------------------------------------------------------------------------------------------------
Income available to
 common stockholders                            19,663             17,983                $1.09
                                                ------             ------                -----
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
--------------------------------------------------------------------------------------------------
Warrants                                             -                218
--------------------------------------------------------------------------------------------------
Outstanding Options                                  -                550
--------------------------------------------------------------------------------------------------
Contingently Issuable Shares                         -                700
                                                     -                ---
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
Diluted EPS
--------------------------------------------------------------------------------------------------
Income available to common
 stockholders and assumed conversions          $19,663             19,451                $1.01
                                               -------             ------                -----
--------------------------------------------------------------------------------------------------
</TABLE>

     Options to purchase approximately 1.1 million shares of common stock at
various exercise prices were outstanding during the nine months ended September
30, 2001 but were not included in the computation of diluted EPS because the
corresponding exercise prices of the


                                      10
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

options were greater than the average market price of the common shares. The
options have various expiration dates during the next 10 years.

     Warrants to purchase approximately 0.1 million shares of common stock, net
of the warrant issued to American Trading S.A. that was canceled on March 28,
2001, issued at various exercise prices were outstanding during the nine months
ended September 30, 2001, but were not included in the calculation of diluted
EPS because the corresponding exercise prices were greater than the average
market price of the common shares.  The warrants have various expiration dates
during the next 5 years.

The effects of dilution for the third quarter of 2001 are not considered since
the effects of assumed conversion or exercise would have an antidilutive effect
on EPS.

     h)   Recent Accounting Pronouncements

     In October 2001, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS No. 144"), which supersedes both FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("SFAS No. 121") and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions ("APB 30"), for the disposal of a
segment of a business (as previously defined in that Opinion). SFAS No. 144
retains the fundamental provisions in SFAS No. 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale, while also resolving significant implementation issues
associated with SFAS No. 121. For example, SFAS No. 144 provides guidance on how
a long-lived asset that is used as part of a group should be evaluated for
impairment, establishes criteria for when a long-lived asset is held for sale,
and prescribes the accounting for a long-lived asset that will be disposed of
other than by sale. SFAS No. 144 retains the basic provisions of APB 30 on how
to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will
never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under SFAS No. 142, Goodwill and Other Intangible Assets.

     The Company is required to adopt SFAS No. 144 no later than the year
beginning after December 15, 2001, and plans to adopt its provisions for the
quarter ending March 31, 2002. Management does not expect the adoption of SFAS
No. 144 for long-lived assets held for use to have a material impact on the
Company's financial position, results of operations or cash flows because the
impairment assessment under SFAS No. 144 is largely unchanged from SFAS No.
121. The provisions of SFAS No. 144 for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, management cannot determine the
potential effects that adoption of SFAS No. 144 will have on the Company's
financial statements.

     FASB Statement No. 143, Accounting for Asset Retirement Obligations ("SFAS
No. 143"), which was released in August 2001, addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and for the associated asset retirement costs. SFAS No. 143 requires an
enterprise to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development and or normal use of the assets. The enterprise also
is to record a corresponding increase to the carrying amount of the related
long-lived asset (i.e., the associated asset retirement costs) and to
depreciate that cost over the life of the asset. The liability is changed at the
end of each period to reflect the passage of time (i.e., accretion expense) and
changes in the estimated future cash flows underlying the initial fair value
measurement. Because of the extensive use of estimates, most enterprises will
record a gain or loss when they settle the obligation. The Company is required
to adopt Statement No. 143 for its fiscal year beginning January 1, 2003.

     In July 2001, FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001 (note 1a). SFAS No. 141 also specifies criteria
that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS No. 142, which is effective January 1, 2002, will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definitive useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144.

     Excluding the proposed acquisition of eMation, on the date of adoption, the
Company expects to have unamortized goodwill in the amount of approximately $1.8
million, and unamortized identifiable intangible assets in the amount of
approximately $0.9 million, all of which will be subject to the transition
provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill
was approximately $5.2 million and $2.0 million for the year ended December 31,
2000 and the nine months ended September 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting SFAS Nos. 141 and 142, and
because the Company expects that FASB will issue further guidance with
respect to adoption of both SFAS Nos. 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements in the Company's
financial statements at the date of this filing.

     i)   Reclassifications

     Certain prior year amounts have been reclassified to conform with the
current year presentation.

2)  Comprehensive Income (Loss)

     The components of comprehensive income (loss) are as follows (in
thousands):

                                      11
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

<TABLE>
<CAPTION>
                                                    Three Months Ended            Nine Months Ended
                                                    ------------------            -----------------
                                                        September 30,                September 30,
                                                        -------------                -------------
                                                     2001          2000           2001          2000
                                                     ----          ----           ----          ----
<S>                                                <C>          <C>             <C>          <C>
Net income (loss)                                  $(4,122)     $(10,328)       $19,663      $(23,389)
Foreign currency translation adjustment                 26          (31)              6           (48)
Unrealized gain on available for sale investment         -             -            (21)            -
                                                   -------      --------        -------      --------

Comprehensive income (loss)                        $(4,096)     $(10,359)       $19,648      $(23,437)
                                                   =======      ========        =======      ========
</TABLE>

3)  Inventories

     Inventories, net consist of the following (in thousands):


                                    September 30,     December 31,
                                         2001             2000
                                    -------------     ------------
Raw materials                           $5,592          $17,369
Products in process                          7              762
Finished products                        2,479            2,752
                                    -------------     ------------
Inventories, net                        $8,078          $20,883
                                    =============     ============


4)  Bank Line of Credit

     The Company has a loan and security agreement with a commercial bank that
provides the Company a line of credit in the amount of the lesser of $5 million
or the borrowing base, as defined (limited to a percentage of eligible accounts
receivable). The line of credit provides for the Company to issue a maximum of
$2 million in the form of letters of credit that reduces the amount of available
borrowings under the line of credit. The line of credit matured in June 2001,
but was extended by the bank until August 2001 and bears interest at the bank's
prime rate (6% at September 30, 2001). There was no outstanding balance under
the line of credit at September 30, 2001.

5)  Accrued Expenses

     Accrued expenses consist of the following:


                                                 September 30,      December 31,
                                                     2001              2000
                                                 -------------------------------
Payroll and related costs...................        $1,414            $  397

Severance...................................           857                 -

                                      12
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Accrued Dolby royalties ....................           305               664
Legal and professional fees.................           811               290
Legal settlements...........................         1,277                 -
Warranty....................................           330               361
Other.......................................           342               435
                                                    ------            ------
                                                    $5,336            $2,147
                                                    ======            ======


6)  Loans Receivable-Officers

     In November 2000, the Company entered into an agreement to loan a newly
hired officer of the Company $50,000 for the purpose of relocation.  In
September 2001, the officer's employment was terminated and the remaining
balance of the loan of $31,000, including interest of approximately $4,000, was
forgiven.

     From September to November 2000, the Company advanced $189,510 to an
officer of the Company. In March 2001, the officer accepted employment with
STMicroelectronics in connection with the sale of our consumer electronics
assets (note 12a). The loan is payable on demand.

     In August and September 2000, the Company entered into agreements to loan
an executive officer of the Company $52,000 and $96,000, respectively, for an
aggregate loan amount of $148,000. The loans are secured by all of the Company's
stock held or subsequently acquired by the officer. The loans bear interest at
5% per annum and were originally due and payable on December 31, 2000, including
all accrued and unpaid interest. The payment terms of the loans were extended
to November 30, 2001. In July 2001, the Company advanced this executive officer
of the Company an additional $250,000. As of September 30, 2001 the executive
officer is no longer employed with the Company.

     In January 2000, the Company entered into an agreement to loan a former
officer of the Company $160,000. The loan is secured by all of the Company's
stock held or subsequently acquired by the former officer and any proceeds from
the disposition of the stock. The loan bears interest at 5% per annum and was
due December 31, 2000. The former officer committed to a payment plan of $5,000
per month and is now in default. The former officer has paid $15,000 and the
Company is negotiating to receive full payment.


     In November 1999, the Company entered into an agreement to loan an officer
of the Company approximately $288,800. The loan was to be repaid in twenty- four
monthly installments of approximately $13,000, and bears an interest rate of 8%.
The agreement also provided for a monthly bonus to the officer in an amount
equal to the monthly loan repayment. In connection with the sale of the Internet
appliance assets (note 12) in March 2001, the unpaid loan balance of
approximately $114,000 was forgiven.

7)  Equity Transactions

    Stock Repurchase Program

     In September 2001, the board of directors approved and the Company
commenced a program to repurchase up to $10 million worth of its outstanding
shares of common stock in the open market over the next 12 months, at the
discretion of management. In September 2001, the Company repurchased 97,800
shares for an aggregate cost of approximately $148,000 including commissions,
at an average market price per share of approximately $1.47.

         Options

     In August 2001, the board of directors granted an aggregate of 331,000
stock options to an officer-employee with an exercise price of $0.01 per share.
The Company recorded deferred

                                      13
<PAGE>


                          RAVISENT TECHNOLOGIES INC.

compensation of approximately $0.5 million that is being amortized over the
vesting period of three years. In the event that the proposed
acquisition of eMation (Note 1a) is not completed by February 2002, options for
100,000 shares shall become immediately vested and exercisable. Also in August
2001, the board of directors granted 300,000 stock options to the
officer-employee with an exercise price equal to the fair market value on the
date of grant. These options vest 25% upon completion of one year of service
from the date of grant, with the balance vesting equally over a 36-month period
measured from the first anniversary of the vesting commencement date.

     In July 2001 the board of directors granted 380,000 stock options to
employees with an exercise price of $0.01 per share. The Company recorded
deferred compensation of approximately $0.8 million that is being amortized on a
pro rata basis over the vesting period of 12 months. Also in July 2001, the
board of directors granted 162,500 stock options to employees with an exercise
price equal to the fair market value on the date of grant, that are fully vested
upon the completion of one year of service from the date of grant.

Warrants

     In June 2000, the Company entered into a one-year distribution rights
agreement (the "Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable on the date of grant, had a two-
year term, and contained certain exercise restrictions as described in the
warrant agreement. At June 30, 2000, the Company recorded the estimated fair
value of the warrant of $5.6 million as an intangible prepaid distribution
rights fee and additional paid-in capital. On March 28, 2001, pursuant to the
January 2001 settlement and release agreement with ATSA canceling the Agreement,
the warrant was canceled (note 9). On March 28, 2001, the warrant had an
estimated fair value of approximately $435,000, which was estimated using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.21%, volatility factor of 96%, no dividend factor and a
remaining life of 1.25 years.

8)  Note Receivable

     Pursuant to a Secured Promissory Note and Agreement dated July 26, 2001,
the Company agreed to advance eMation Ltd. (Note 1a) a bridge loan (the "Loan")
of up to an aggregate of $2.5 million for the purpose of financing operating
expenses incurred in the normal course of business. In October 2001, the Company
and eMation amended the Secured Promissory Note and Agreement to lend up to an
aggregate of $5 million. The Loan contains various terms and conditions
including an interest rate of three-month LIBOR plus 2.5% (5.097% as of
September 30, 2001). The principal balance of the loan including interest is
payable if the Share Purchase Agreement ("SPA") between Ravisent, eMation and
certain shareholders of eMation is terminated, for certain conditions specified
as defined in the SPA, on various dates ranging from thirteen to fifty months
from the date of termination. In the event that the eMation acquisition is not
consummated, the principal and interest are due and payable on the earliest date
on which any principal amounts owed by eMation to Bank Leumi become due and
payable. As of September 30, 2001, $2.5 million had been advanced to eMation
under the loan.

9)  Commitments and Contingencies

     On or about August 10, 2000, Corum Group, Ltd. filed an action against
RAVISENT and Cinax Designs Inc. in the United States District Court for the
Western District of Washington (No. C00-1352D). Corum, a business consultant,
alleged that it had an agreement with Cinax whereby Cinax would pay Corum an 8%
"transaction fee" in the event Corum located a purchaser

                                      14
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

for Cinax. The Company acquired Cinax by agreement dated as of July 13, 2000 for
compensation of $3.5 million in cash and an aggregate of 825,000 shares of the
Company's common stock and non-voting exchangeable preferred stock of one of our
subsidiaries, Ravisent British Columbia Inc., which preferred stock is
exchangeable, on a one-for-one basis, into shares of our common stock. In the
complaint Corum alleged that it introduced RAVISENT to Cinax and that it was
therefore entitled to $281,362 and 66,000 shares of our common stock. As part of
our acquisition of Cinax, the shareholders of Cinax agreed to indemnify us for
50% of any liability stemming from the Corum claim and an aggregate of
approximately 53,500 shares of our common stock and non-voting, no-par
exchangeable preferred stock of Ravisent British Columbia Inc. were placed in
escrow to secure this indemnification obligation. On April 17, 2001, the parties
entered into a settlement and release agreement whereby the Company paid cash of
$110,000 and issued 140,000 shares of RAVISENT common stock to Corum totaling
approximately $0.3 million in full settlement of the matter and the action has
been dismissed. The amount of the settlement was accrued in full as of March 31,
2001 and all of the shares that were placed in escrow to indemnify the Company
for this liability were returned to the Company in September 2001.

     Between February and April 2000, eleven class action lawsuits were filed
against RAVISENT and certain of its officers and directors in the United States
District Court for the Eastern District of Pennsylvania. On May 25, 2000, the
cases were consolidated under Civil Action No. 00-CV-1014, and entitled "In re
RAVISENT Technologies Inc. Securities Litigation". Pursuant to the court's
consolidation order, a consolidated and amended class action complaint was filed
on June 14, 2000 with an alleged class period of July 15, 1999 through April 27,
2000. This complaint alleges violations of the federal securities laws,
specifically Sections 11 and 15 of the Securities Act of 1933, Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder and seeks unspecified damages on behalf of a purported class of
purchasers of our stock during the period stated above. On July 3, 2000, we
filed a motion to dismiss the consolidated and amended class action complaint.
The motion is presently fully briefed and the parties are awaiting a hearing
date to be set for the motion. In connection with the Company's initial public
offering, the Company purchased directors and officers insurance that provides
the Company with protection from claims made against officers, directors or the
Company arising from claims including but not limited to any written demand for
damages and any civil, criminal, administrative, or regulatory proceedings and
appeals. Certain of our employees and certain holders of 5% or more of our
common stock are members of the putative classes alleged in these actions and
therefore may have interests adverse to us with respect to the alleged claims in
these actions. We believe that such lawsuits or claims are without merit and
that we have meritorious defenses to the actions. We plan to vigorously defend
the litigation. However, failure to successfully defend these actions could
substantially harm our results of operations, liquidity and financial condition.

     In April 2001, a third party who licensed software to the Company filed a
lawsuit against the Company in California. The dispute arose out of a contract
whereby the Company licensed software from the third party for use with the
eSurfer browser bundled with the Company's Internet set-top box assets sold to
Phoenix Technologies in March 2001 (note 12). The third party claimed that there
were fees due and owing under the contract. The Company and the third party
entered into a confidential settlement agreement in July 2001 and the case has
been dismissed. The amount of the settlement was fully accrued as of June 30,
2001.

     In the opinion of management, the amount of the ultimate liability with
respect to the above claims will not materially affect the Company's financial
position, results of operations, or cash flows.

                                      15
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

     In June 2000, the Company entered into a one-year distribution rights
agreement ("the Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable on the date of grant, had a two-
year term, and contained certain exercise restrictions as described in the
warrant agreement.

     Due to the parties' differing interpretations of the terms of the
Agreement, in January 2001 the parties entered into a settlement and release
agreement ("the Release"). The Release provides for the immediate termination of
the Agreement, including the right for RAVISENT to terminate the warrant and a
royalty-free right in 2001 for Ravisent to use the mark "WWWTV," which RAVISENT
will own after December 31, 2001. In addition, in January 2001 the Company paid
approximately $1.2 million to ATSA in exchange for the settlement and release
and is required to pay an additional minimum finder's fee of $1 million in
January 2002 for sales of the Internet set-top box in Brazil in 2001. The
aggregate amount of the settlement of $2.2 million, net of the estimated fair
value of the canceled warrant of $0.4 million (note 7) is included in other
selling and marketing expenses in the consolidated statement of operations for
the nine months ended September 30, 2001.

     From time to time, the Company has received, and expects to continue to
receive, notices of claims of infringement of other parties' proprietary rights
and other claims in the ordinary course of business. Management believes the
amount of the ultimate liability with respect to these claims will not
materially affect the Company's financial position, results of operations, or
cash flows.

10) Segment Information

    The Company operates in a single industry segment, which is the development
and licensing of its technology.

    The Company sells and licenses its technology to customers primarily in
North America, Asia-Pacific and Europe. The net loss from operations for all
periods presented is derived primarily from the company's North American
operations, which generates revenues from the following geographic regions (in
thousands):

                                         Three Months Ended September 30,
                                         --------------------------------
Country/ Geographic Region                      2001            2000
--------------------------               --------------------------------

North America:
     United States                                 $ 247          $2,837
     Canada                                          276             420
                                         ---------------    ------------
          Total - North America                      523           3,257
                                         ---------------    ------------

Europe:
     Italy                                             -             288
     Germany                                         220             197
     France                                            -              30
     Turkey                                            -             169
     Other                                            58              12
                                         ---------------    ------------
          Total - Europe                             278             696
                                         ---------------    ------------

                                      16

<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Asia-Pacific:
     Taiwan                                           30               275
     Japan                                            10                 -
                                           -------------      ------------
          Total - Asia-Pacific                        40               275
                                           -------------      ------------


Total                                              $ 841            $4,228
                                           =============      ============




                                           Nine Months Ended September 30,
                                           -------------------------------
Country/ Geographic Region                      2001            2000
--------------------------                 --------------     -----------

North America:
     United States                                 $2,314         $ 6,646
     Canada                                         1,366           1,795
                                           --------------     -----------
          Total - North America                     3,680           8,441
                                           --------------     -----------

Europe:
     Italy                                              -           2,023
     Germany                                          368             427
     France                                            21              34
     Turkey                                             6             169
     Other                                             80              31
                                           --------------     -----------
          Total - Europe                              475           2,684
                                           --------------     -----------

Asia-Pacific:
     Taiwan                                            30           2,895
     Japan                                            263             375
     Korea                                              2               -
                                           --------------     -----------
          Total - Asia-Pacific                        295           3,270
                                           --------------     -----------

South America - Other                                   1             389
                                           --------------     -----------



Total                                              $4,451         $14,784
                                           ==============     ===========
11)  Segment Reporting

                                      17
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

     Segment information is presented in accordance with Statement of Financial
Account Standards No. 131 ("SFAS 131"), "Disclosures About Segments Of An
Enterprise And Related Information." This standard requires segmentation based
upon the Company's internal organization and disclosure of revenue and operating
income based upon internal accounting methods. For the nine months ended
September 30, 2001 the Company had three reportable segments: personal computer
("PC"), consumer electronics ("CE") and Internet appliance ("IA") (note 12).

     PC: This segment designs, develops, licenses and markets core-based modular
software solutions that enable digital video and audio stream management in
personal computer systems. The segment also provides supporting hardware designs
to selected customers as well as customization services and customer support.
The segments solutions enable decoding (playback) and encoding (recording) of
multimedia formats such as digital versatile disk (DVD); direct broadcast
satellite (DBS) and high-definition television (HDTV) on existing personal
computers.

     CE: This segment designed, developed, licensed and marketed core-based
modular software solutions that enable digital video and audio stream management
in consumer electronics devices. The segment also provided supporting hardware
designs to selected customers as well as customization services and customer
support. The segments solutions enable decoding (playback) and encoding
(recording) of multimedia formats such as digital versatile disk (DVD); direct
broadcast satellite (DBS) and high-definition television (HDTV) on existing
consumer electronics platforms (note 12).

     IA: The Company's Internet technology segment was involved in the
development of products for the emerging market in information appliances. The
segment sold Internet appliance hardware reference designs and software
technology through intellectual property licenses and agreements with Internet
service providers. This segment provided the Company with a number of Internet-
related products, including an efficient web browser, and several Internet
appliance reference designs including a Web Pad design, Internet ready TV and
monitor designs and an Internet-ready screenphone (note 12).

     The Company evaluates operating segment performance based on revenue and
gross profit. It has not historically evaluated segment performance based on
operating income nor allocated assets to its individual operating segments.

                                                Three Months Ended September 30,
                                                     2001            2000
                                                 -----------    --------------
                                                         (In thousands)
    Revenue:
      PC....................................          $ 605             $2,669
      CE....................................              -                306
      IA....................................            236              1,253
                                                      -----             ------

   Total...................................          $ 841             $4,228
                                                      -----             ------
    Gross profit:
      PC....................................          $ 322             $1,973
      CE....................................              -                264
      IA....................................              9                728
                                                      -----             ------
    Total...................................          $ 331             $2,965
                                                      =====             ======

                                      18
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

<TABLE>
<CAPTION>
                                                                         Nine Months Ended September 30,
                                                                               2001                2000
                                                                                   (In thousands)
<S>                                                                  <C>                      <C>
    Revenue:
      PC...........................................................              $3,693         $ 8,173
      CE...........................................................                 421             426
      IA...........................................................                 337           6,185
                                                                                 ------         -------
    Total..........................................................              $4,451         $14,784
                                                                                 ======         =======

    Gross profit:
      PC...........................................................              $2,400         $ 5,630
      CE...........................................................                 327             347
      IA (excludes inventory charge of $13,420 in 2001)............                  24          1,560
                                                                                 ------         -------
         Total (excludes inventory charge of $13,420 in 2001)......              $2,751         $ 7,537
                                                                                 ======         =======
</TABLE>


12)  Sales of Assets

     a)  Sale of Consumer Electronics Assets

     On March 1, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its consumer electronics business to
STMicroelectronics N.V. ("STMicroelectronics"), a Dutch corporation. The assets
sold included certain contracts, equipment, intangible assets, intellectual
property, prepaid expenses, accounts receivable and other assets primarily
related to the operations of the consumer electronics business. In connection
with the sale, the Company and STMicroelectronics entered into certain
agreements including an Assignment and Assumption of Lease with respect to the
Company's former corporate headquarters office facility located in Malvern,
Pennsylvania. Certain employees of the Company entered into employment
agreements with STMicroelectronics. Pursuant to the terms of the Asset
Acquisition Agreement, STMicroelectronics paid approximately $55.6 million in
cash consideration, of which $0.8 million is being held by a third party in
escrow for a period of 18 months for indemnification purposes and is included in
other assets in the consolidated balance sheet as of September 30, 2001. In
connection with the asset sale, the Company and certain of its subsidiaries
granted to STMicroelectronics certain non-exclusive rights to license and
distribute certain of its technology used in its Internet appliance products
(note 12b) and personal computer products.

     The Company recorded a gain on the sale of approximately $47.5 million
during the quarter ended March 31, 2001. The net gain was calculated as follows
(in thousands):


Sale price..................................................         $55,602
Accounts receivable acquired................................            (261)
Accrued expenses assumed....................................             137
Net book value of deferred stock compensation...............            (498)
Net book value of furniture and equipment sold..............          (2,036)
Net book value of goodwill and intangibles..................            (968)
Other assets................................................             (18)
Employee transition and inducement costs....................          (2,956)

                                      19
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Professional and legal fees.................................          (1,487)
                                                                     -------
Gain on sale of consumer electronics assets.................         $47,515
                                                                     =======


b)  Sale of Internet Appliance Assets

     On March 23, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its Internet appliance business to Phoenix
Technologies Ltd. ("Phoenix"), a Delaware corporation. The assets sold included
certain contracts, equipment, intangible assets, intellectual property and
prepaid expenses primarily related to the operations of the Internet appliance
business. Certain employees of the Company entered into employment agreements
with Phoenix Technologies, Ltd. Pursuant to the terms of the Asset Acquisition
Agreement, Phoenix paid $18 million in cash consideration, of which $1.8 million
is being held by a third party in escrow for a period of 12 months for
indemnification purposes and is included in restricted cash in the consolidated
balance sheet as of September 30, 2001.

     The Company recorded a gain on the sale of approximately $4.5 million
during the quarter ended March 31, 2001. The net gain was calculated as follows
(in thousands):


Sale Price.............................................             $ 18,000
Prepaid expenses.......................................                 (954)

Net book value of deferred stock compensation..........                 (121)
Net book value of furniture and equipment sold.........                 (466)
Net book value of goodwill and intangibles.............              (10,586)
License fee                                                             (250)
Employee transition and inducement costs...............                 (763)
Professional and legal fees incurred...................                 (338)

                                                                    --------

Gain on sale of Internet appliance assets..............             $  4,522
                                                                    ========

    c)    Pro Forma Financial Information

     The following unaudited pro forma financial information presents the
results of operations of the Company as if the dispositions occurred on January
1, 2001, after giving effect to certain adjustments, primarily revenues and
personnel costs associated with the disposed businesses and amortization of
goodwill. The unaudited pro forma financial information for the nine months
ended September 30, 2001 (in thousands except per share data) does not
necessarily reflect the results of operations that would have occurred had the
dispositions been completed on January 1, 2001.

                                      20
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

<TABLE>
<CAPTION>
                                                                 Nine Months Ended September 30, 2001
                                                                 (In thousands, except per share data)
                                                                                                              Ravisent
                                                             Adjustments     Pro Forma-     Adjustments      Pro Forma-
                                               Ravisent       to record      Subsequent      to record       subsequent
                                              Historical      sale of CE     to sale of      sale of IA    to sales of CE
                                              (unaudited)       assets        CE assets        Assets       and IA assets
                                             ------------   -------------   ------------   -------------   --------------
<S>                                          <C>            <C>             <C>            <C>             <C>
Revenues:
  License Fees..............................    $   3,607         $   (14)      $  3,593         $     -         $  3,593
  Service Fees..............................          407            (407)             -               -                -
  Hardware..................................          437               -            437             (26)             411
                                                ---------         -------       --------         -------         --------
Total revenues..............................        4,451            (421)         4,030             (26)           4,004
                                                ---------         -------       --------         -------         --------
Cost of revenues:
  License Fees..............................        1,162               -          1,162               -            1,162
  Service Fees..............................           94             (94)             -               -                -
  Hardware..................................          444               -            444             (28)             416
  Inventory Charge..........................       13,420               -         13,420               -           13,420
                                                ---------         -------       --------         -------         --------
Total cost of revenues......................       15,120             (94)        15,026             (28)          14,998
                                                ---------         -------       --------         -------         --------
Gross profit................................      (10,669)           (327)       (10,996)              2          (10,994)

Research and development
  Non-cash compensation.....................        2,082             (45)         2,037              (4)           2,033
  Other research and development expense....        4,490            (693)         3,797            (775)           3,022
Sales and marketing
  Non-cash compensation ....................           87              (6)            81             (44)              37
  Other selling and marketing expense.......        5,409            (349)         5,060          (1,768)           3,292
General and administrative
  Non-cash compensation.....................          387              (4)           383               -              383
  Other general and administrative expense..        6,497            (293)         6,204            (145)           6,059
  Provision for doubtful accounts...........          784            (126)           658               -              658
Depreciation and amortization...............        2,413            (216)         2,197          (1,070)           1,127
                                                ---------         -------       --------         -------         --------

     Operating income (loss)................    $ (32,818)        $ 1,405        (31,413)          3,808          (27,605)
                                                =========         =======       ========         =======         ========

Basic operating income (loss) per weighted
average common share outstanding............    $   (1.83)        $   .08       $  (1.75)        $   .21         $  (1.54)
                                                =========         =======       ========         =======         ========

Diluted operating income (loss) per
weighted average common share
outstanding.................................    $  $(1.83)        $   .07       $  (1.75)        $   .20         $  (1.54)
                                                =========         =======       ========         =======         ========

Weighted average number of common shares
outstanding used in calculation of basic
operating income (loss) per share ..........       17,982          17,982         17,982          17,982           17,982
                                                =========         =======       ========         =======         ========

Weighted average number of common shares
outstanding used in calculation of diluted
operating income (loss) per share ..........       17,982          19,451         17,982          19,451           17,982
                                                =========         =======       ========         =======         ========
</TABLE>

                                      21
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

ITEM 2:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

     The following discussion of the financial condition and results of
operations of RAVISENT should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included elsewhere
in this report. The information herein contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve a number of risks and uncertainties. A number of factors could cause our
actual results, performance and achievements or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors, as
discussed below, see "Risk Factors," and in our Annual Report on Form 10K filed
on April 2, 2001, include, but are not limited to, the competitive environment
in the personal computer industry in general and our specific market areas;
changes in prevailing interest rates and the availability of financing to fund
the anticipated growth of our business; inflation; changes in costs of goods and
services; our inability to protect our intellectual property; economic
conditions in general and in our specific market areas; demographic changes;
changes in or failure to comply with foreign, federal, state and/or local
government regulations; claims for damages asserted against us; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; changes in our acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends," or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. We disclaim any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward looking statements contained herein to reflect future events or
developments.

Overview and Recent Events

     On June 28, 2001, we announced that we signed an agreement to acquire all
of the issued share capital of eMation Ltd. Under the terms of the share
purchase agreement, we have offered to acquire from eMation's shareholders all
of the issued and outstanding shares of eMation for up to 8 million shares of
RAVISENT common stock and the assumption of $5 million in debt. We have also
agreed to issue an additional 1.55 million shares of RAVISENT common stock upon
the exercise of eMation stock options to be assumed by us in the eMation
acquisition. In addition, we have agreed to provide up to $5.0 million of
interim financing to eMation to fund operating expenses until closing. The
eMation acquisition is subject to customary closing conditions, including
regulatory and RAVISENT stockholder approval and is currently expected to close
during the fourth quarter of 2001.

     Prior to March 1, 2001, we designed, developed, licensed and marketed
innovative modular software solutions that enabled digital video and audio
stream management in personal computer systems, consumer electronics devices and
Internet appliances. We also licensed supporting hardware designs to select
customers, provided customization services and customer support. In

                                      22
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

addition, we also sold Internet appliances and components to telecommunications
companies, Internet service providers and others. Our product offerings included
a software or hardware Internet set-top box solution, which included all of the
intellectual property, software, hardware design and manufacturing design
necessary for a manufacturer or Internet service provider to launch an
affordable product and Nucleo, a hardware reference design based on our ARM-7500
processors with e-Surfer(TM)--a thin customizable browser designed specifically
for Internet appliances.

     Effective as of March 1, 2001, pursuant to an asset acquisition agreement
dated as of January 18, 2001, along with our subsidiaries, Ravisent I.P., Inc.,
Ravisent Operating Company, Inc. and VIONA Development Hard and Software
Engineering GmbH & Co. KG, we sold and licensed substantially all of our assets
related to our consumer electronics business to STMicroelectronics, NV, a Dutch
corporation, STMicroelectronics, Inc., a Delaware corporation, and
STMicroelectronics GmbH (collectively, "STMicroelectronics"). The assets sold
and licensed include contracts, equipment, intangible assets, intellectual
property, prepaid expenses, accounts receivable and other assets primarily
related to the operation of the consumer electronics business. In addition,
approximately 76 of our employees, most of whom were associated with our
consumer electronics business, accepted employment with STMicroelectronics in
connection with the asset sale. Pursuant to the terms of the asset acquisition
agreement, STMicroelectronics paid approximately $55.6 million in cash
consideration, of which $0.8 million is being held by a third party in escrow
for indemnification purposes. In connection with the asset sale, we granted to
STMicroelectronics certain non-exclusive rights to license and distribute
certain of our technology used in our Internet appliance products and our
personal computer products. In addition, we agreed not to compete in significant
aspects of the consumer electronics market until March 1, 2006. Revenues and
gross margin for the consumer electronics business totaled approximately $0.4
million, or 9% of total revenues, and $0.3 million, or 12% of total gross
profit, excluding inventory charges, respectively, for the nine months ended
September 30, 2001. There were no revenues or gross margin for the consumer
electronics business for the three months ended September 30, 2001. These
amounts are not necessarily indicative of the results that would have been
obtained for any future period.

     Effective as of March 23, 2001, pursuant to an asset acquisition agreement
dated as of March 21, 2001, along with certain of our subsidiaries, we sold
substantially all of the assets related to our Internet appliance business to
Phoenix Technologies Ltd., a Delaware corporation, for $18.0 million in cash
consideration, of which $1.8 million is being held in escrow by a third party
for indemnification purposes until March 2002. The assets sold include certain
of the contracts, equipment, intangible assets, intellectual property, prepaid
expenses and other assets primarily related to the operation of the Internet
appliance business. Under the asset acquisition agreement, Phoenix Technologies
purchased our e-Surfer embedded software Internet browser and related hardware
designs for the Internet appliance market. In addition, in connection with this
asset sale, 13 of our employees associated with the Internet appliance business
accepted employment with Phoenix Technologies. With the exception of the
expected sales in 2001 of inventory not included in the transaction, we expect
only nominal sales attributable to our Internet appliance business in 2001.

     For the nine months ended September 30, 2001, revenues and gross profit
from our Internet appliance product line were approximately $337,000 and $24,000
respectively, and represented 8% of the total revenues and 1% of total gross
profit, excluding inventory charges. These amounts are not necessarily
indicative of the results that would have been obtained for any future period.

                                      23
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

     We now design, develop, license and market innovative modular software
solutions that enable digital video and audio stream management primarily for
personal computer systems. We also license supporting hardware designs to
selected customers and provide customization services and customer support. Our
solutions enable decoding and encoding of multimedia formats such as DVD,
DBS/DVB and HDTV primarily on personal computer platforms. Our digital solutions
incorporate industry standards for video and audio compression and are
independent of operating systems and silicon components.

     We license technology from Dolby Laboratories ("Dolby") for the audio
format that is used in all of our DVD-related products. We pay a royalty to
Dolby on a per-unit shipped basis. The technology, called Dolby Digital, permits
audio from a DVD to be routed to different speakers in a multi-speaker set up to
permit "theater-quality" audio. The Dolby Digital technology is part of the
industry standard DVD specification. The license for the Dolby Digital
technology is for a term expiring at the expiration of the patent covered
thereby with the furthest expiration date from the date of the license.
Currently, the furthest expiration date of a United States patent is January
17,2006. In addition, we license encryption and decryption software technology
from the Copy Control Association (CCA), which must also be included in any DVD
products we ship. The license for the encryption and decryption technology may
be terminated at any time. We may not be able to renew either license. If we
failed to renew these licenses, we would not be able to ship products for the
DVD market, and we would accordingly lose a substantial portion of our revenues.
In addition, we license encryption and decryption software technology from DVD
Copy Control Association, Inc. This technology is designed to prevent
unauthorized persons from accessing DVD content such as movies. We have a
royalty-free license from DVD Copy Control Association, Inc.

     As of September 30, 2001 our net inventories totaled $8.1 million and
decreased approximately $12.8 million from the balance at December 31, 2000. The
decrease is primarily due to increased reserves of approximately $10.2 million
for components, and approximately $3.2 million for Internet set-top boxes. The
reserves were determined based on various factors including current market
prices, industry conditions, alternative uses and distribution channels and
manufacturer's warranties. In addition, we received additional credits from a
component supplier of $0.6 million and from a contract manufacturer of
approximately $0.6 million. The decreases are offset by increases attributable
to purchases of approximately 25,000 Internet set-top boxes, related to our
recently sold Internet appliance group, totaling approximately $2.6 million. We
placed orders with our contract manufacturers for these products during the
third and fourth quarters of 2000 in expectation of significant orders under a
distribution rights agreement with a customer in South America. Due to the
parties' differing interpretations of the terms of the distribution rights
agreement, in January 2001 the parties entered into a settlement and release
agreement, terminating the distribution rights agreement. Because of current
market conditions, we have reserved approximately $1.5 million for these units.
While our current product offerings have changed as a result of the sale of the
Internet appliance business, we continue to pursue existing customer
relationships and sales channels, which require raw materials and finished goods
relating to the manufacture of Internet appliance devices, for the sale of this
inventory. In addition, we are working with several overseas finished goods
distributors and parts brokers for the sale of this inventory. Presently, we
believe that we can sell the inventory in the normal course of business and we
are continually assessing the market for these products. When sold, we expect
minimal gross margin on the sale of our component and finished goods
inventories. However, to the extent that we are unsuccessful at selling the
inventory through the sales channels discussed above, we may have to explore
alternative sales channels, which may not be on terms that will enable us to
recover the carrying value of the inventory.

     During the nine months ended September 30, 2001 and following the asset
sales in March 2001, our customers consisted primarily of personal computer and
computer graphics chip and board
                                      24
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

manufacturers and distributors. Approximately $3.6 million or 81% of our
revenues for the nine months ended September 30, 2001 were from licensing our
software solutions. These revenues were derived from sales of our Software
CineMaster products. However, the mix between license, services, and hardware
revenues may vary dependeing upon future sales of our current inventories.
During the remainder of 2001, hardware revenues are expected to increase as we
sell our current component and finished goods inventories. However, we expect to
generate minimal gross profit from these sales due to the current market
conditions for these inventories.

     License revenues consist of fees paid on a per unit basis, each time a
manufacturer ships a product that incorporates our software solutions, or may
consist of flat fee arrangements, bulk license purchases, or license grants.
Services revenues now consist of engineering fees from personal computer,
peripheral and semiconductor manufacturers for custom engineering services.
During the first quarter 2001, we earned services revenues from consumer
electronics manufacturers for custom engineering. However, in March 2001 we
disposed of both this product line and our Internet appliance product line
pursuant to the March 2001 asset sales to STMicroelectronics and Phoenix
Technologies. Services are generally billed on either a time and material basis
or on a project or contract basis. License revenues are recognized when earned,
which is generally based on receiving notification from a licensee detailing the
shipments of products incorporating our technology. In a number of cases, this
occurs in the quarter following the sale of the licensee's product to its
customers. Our license agreements generally have a term of one year or less and
typically require payment within 30 days after the end of the month or calendar
quarter in which the product is shipped. Some of our contracts may also require
payment of an up-front license fee. License fees paid in advance, with no
further future commitment, are recognized in the period that the license
agreement is signed, the fee is fixed or determinable, the technology is
delivered and accepted and collectibility is probable.

     The amount and timing of some fixed fees could cause our operating results
to vary significantly from period to period due to the timing and number of
agreements, as well as the timing of the recognition of the associated revenues.
In cases where a fixed or lump-sum license fee is associated with the delivery
of multiple elements and vendor-specific objective evidence of fair value cannot
be established for the individual elements, the entire fee from the arrangement
is deferred until the earlier of the establishment of vendorspecific objective
evidence of fair value or the delivery of all the elements of the arrangement.
In cases where a license grants a customer unspecified upgrade rights, the fixed
or lump sum license fee is deferred and recognized ratably over the term of the
arrangement. Billed amounts due from customers in excess of revenues recognized
are recorded as deferred revenues. Services revenues are recognized upon
delivery of the service in the case of time and material contracts or on a
percentage completion basis in the case of project-based contracts. Hardware
product sales are recognized upon shipment of the product to the manufacturer or
end user.

     A substantial portion of our license revenues come from a small number of
customers. In the nine months ending September 30, 2001, three customers Matrox
Graphics, Gateway, Inc. and another customer, accounted for 20%, 11% and 28%,
respectively, of our total revenues and 9%, 8% and 45%, respectively, of our
total gross profit, excluding inventory charges of $13.4 million. We expect a
relatively small number of customers to account for a majority of our revenues
and gross profit, if any, for the foreseeable future. The loss of any of these
or other primary customers, or a material decrease in revenues from these
customers, would immediately harm our business.

     In the nine-month period ending September 30, 2001, we derived
approximately 90% of our license revenues from sales of our CineMaster products.
We expect that license revenues from

                                      25
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

our CineMaster products will continue to account for a significant portion of
our revenues for the foreseeable future. In particular, our business will be
harmed if our existing manufacturing customers do not continue to incorporate
our CineMaster products or if we are unable to obtain new customers for our
CineMaster products. In seeking market acceptance, it may be difficult for our
digital solutions to displace incumbent solutions employed by manufacturers not
currently licensing our CineMaster products. Manufacturers that are using other
solutions would need to invest in additional training and development tools and
convert software for existing hardware solutions in order to change to a new
digital solution. Accordingly, potential customers may not accept our digital
solutions, which could limit our growth opportunities and harm our prospects.

     Our agreements with our customers are typically of limited duration and do
not contain minimum purchase commitments or are terminable with little or no
notice. Rather than long-term contracts, we typically enter into licensing
agreements with one-year terms or less that may automatically renew each
subsequent period unless either party receives a written cancellation. As a
result, many of our customers could elect not to renew these agreements and we
could have little warning of this election. Also, since our agreements with our
customers do not include minimum purchase requirements, the demand for our
products is unpredictable. As a result of competition or fluctuations in demand,
we could be required to reach an accommodation with our customers with respect
to contractual provisions such as price or delivery time in order to obtain
additional business and maintain our customer relationships. Any termination,
decrease in orders or election not to renew a contract by our principal
customers would harm our business.

     In April 1998, we acquired Viona, a German engineering services company.
Prior to the acquisition, we had contracted with Viona to co-develop its
products and a significant portion of its software and systems architecture.
Through our relationship with Viona we quickly realized the strategic importance
the work Viona had done with us, in the digital video space, and determined that
our future competitive position would largely depend on our ability to not only
continue to develop new and enhanced digital media products, but to have
exclusive ownership of the products being developed by Viona also. The purchase
price was approximately $11.4 million and the acquisition was recorded under the
purchase method of accounting. We paid $6.1 million in cash, of which $2.6
million was paid at closing, $2.1 million was paid in 1999, and $1.4 million
during each of the next three fiscal years, we issued 1,204,820 shares of our
common stock valued at $4.8 million and incurred transaction costs of $0.8
million. The results of operations of Viona have been included in our operating
results since the date of acquisition. In connection with the acquisition, we
expensed $7.9 million of the purchase price as acquired in-process research and
development. The remaining portion of the purchase price was attributable to
acquired assets, which were primarily fixed assets and accounts receivable,
recorded at fair market value, in the amount of $0.5 million and intangible
assets totaling $3.5 million, less liabilities acquired of $0.6 million. The
intangible assets consisted of goodwill valued at $3.5 million and workforce in
place valued at $0.04 million. We sold most of assets, including the
intellectual property used in the consumer electronics business, that we
acquired from Viona in the sale of our consumer electronics business to
STMicroelectronics in March 2001. The remaining unamortized book value of the
goodwill recorded in connection with the acquisition of Viona of approximately
$1.0 million, which was being amortized over its estimated useful life of four
years, and the net book value of all of Viona's furniture and equipment of
approximately $0.2 million has been included in the net gain on sale of assets.

     Recognizing the potential growth in the Internet appliance market, we
acquired Teknema in November 1999. This acquisition gave us an immediate
presence and allowed us to compete in the emerging market for Internet
appliances. Teknema designed, developed and marketed information appliances,
including software and hardware, which enabled easy access to the

                                      26
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Internet. We acquired Teknema for approximately $14.9 million, consisting of
$2.5 million in cash, 266,169 shares of our common stock and options to acquire
537,582 shares of common stock with a combined value of $12.4 million and
incurred transaction costs of $0.9 million. Prior to the acquisition we loaned
Teknema $1.0 million. The acquisition was recorded under the purchase method of
accounting. In connection with the acquisition, we expensed $1.8 million of the
purchase price as acquired in-process research and development. We sold all of
the intellectual property that we acquired from Teknema in connection with the
sale of our Internet appliance business to Phoenix Technologies in March 2001,
as described above. The remaining unamortized book value of the goodwill
recorded in connection with the acquisition of Teknema of approximately $10.6
million, which was being amortized over its estimated useful life of four years,
has been included in the net gain on sale of assets.

     As part of our ongoing strategy to add to our digital video and audio
products portfolio in the PC business we acquired Cinax Designs Inc. ("Cinax")
in August 2000. The acquisition of Cinax provided us, among other products, with
WinVCR, a product which allows users to record any video and audio source onto
their PC hard drive in real time. In addition, the Cinax acquisition brought
with it a skilled set of developers, which we believed would allow us to
accelerate the delivery of new products that leverage our core competencies. We
acquired all of the outstanding capital stock of Cinax for approximately $3.5
million in cash and an aggregate of 825,000 shares of RAVISENT common stock and
shares of no par, non-voting exchangeable preferred stock of our subsidiary,
Ravisent British Columbia Inc., which shares of preferred stock are
exchangeable, at the option of the holder, on a one-for-one basis, into shares
of RAVISENT common stock. The approximate value of the stock consideration on
the date of acquisition was $3.7 million. The acquisition was recorded under the
purchase method of accounting. In connection with the acquisition, we expensed
$1.4 million of the purchase price as acquired in-process research and
development. Goodwill and other intangible assets of $3.2 million were recorded
and are being amortized on a straight-line basis over a period of four years. We
have retained this intellectual property and have not transferred or sold it as
a result of the STMicroelectronics or Phoenix Technologies transactions.

     For the nine months ended September 30, 2001, our operating expenses
decreased by approximately $10.4 million as compared to the nine months ended
September 30, 2000. The decrease is a result of the asset sales to
STMicroelectronics and Phoenix Technologies described above, a reduction of
approximately $4.0 million in marketing and amortization expense incurred for
our American Trading S.A. agreement and a reduction of in-process research and
development expense of $1.4 million for our Cinax acquisition. For the nine
months ended September 30, 2001 the total decreases in operating expenses were
offset by the settlement of the American Trading S.A. distribution agreement,
the immediate recognition of prepaid and deferred compensation expense from the
Cinax acquisition, amortization of goodwill recorded as part of the acquisition
of Cinax and the pursuit of strategic initiatives.


Results of Operations

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000.

     The following table sets forth, for the periods indicated, the amount and
percentage of total revenues represented by certain items reflected in our
consolidated statements of operations:




                                      27
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

             Unaudited Consolidated Statements of Operations Data
                                (In thousands)


<TABLE>
<CAPTION>
                                                                Three Months Ended September 30,
                                                                --------------------------------
                                                               2001                         2000
                                                               ----                         ----
                                                                  Percentage                   Percentage
                                                      Amount      of Revenue      Amount       of Revenue
<S>                                                  <C>          <C>            <C>           <C>
Revenues:
   License fees                                       $   571            68%     $  3,318              79%
   Service fees                                             -             -           435              10
   Hardware                                               270            32           475              11
                                                      -------          ----      --------          ------
     Total revenues                                       841           100         4,228             100
                                                      -------          ----      --------          ------

Cost of revenues:
   License fees                                           207            25           676              16
   Service fees                                             -             -           110               3
   Hardware                                               303            36           477              11
                                                      -------          ----      --------          ------
     Total cost of revenues                               510            61         1,263              30
                                                      -------          ----      --------          ------

Gross profit                                              331            39         2,965              70

Research and development
    Non-cash compensation                                 228            27            95               2
    Other research and development expense              1,084           129         2,686              64
Sales and marketing
    Non-cash compensation                                  18             2         1,525              36
    Other selling and marketing expense                 1,075           128         4,298             102
General and administrative
    Non-cash compensation                                 275            33            71               2
    Other general and administrative expense            2,620           312         2,086              49
    Provision for doubtful accounts                         -             -            96               2
Depreciation and amortization                             358            42         1,489              35
Acquired in-process research and development                -             -         1,373              32
                                                      -------          ----      --------          ------

Operating loss                                         (5,327)         (634)      (10,754)           (254)

Interest (income) expense, net and other
(income)                                                 (520)          (62)         (433)            (10)
                                                      -------          ----      --------          ------

Loss before income taxes                               (4,807)         (572)      (10,321)           (244)

Provision for income taxes (benefit)                     (685)          (82)            7               -
                                                      -------          ----      --------          ------

Net loss                                              $(4,122)         (490)%    $(10,328)           (244)%
                                                      =======         =====      ========            ====
</TABLE>


Revenues. Total revenues decreased 80% from $4.2 million for the three months
ended September 30, 2000 to $0.8 million for the three months ended September
30, 2001. License revenues

                                      28
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

decreased 83% from $3.3 million to $0.6 million for the three months ended
September 30, 2001, due to a decline in Internet appliance revenues of
approximately $0.7 million, continued weakness in the PC industry and increased
competition resulting in lower per unit selling prices in the PC DVD market,
totaling approximately $2.0 million. As a result of increased competition in the
PC market, we lost two PC OEM manufacturing customers, which accounted for
approximately $1.6 million, or 39%, of our total revenues and 49% of our license
revenues, in the three months ended September 30, 2000. Also as a result of
increased competition, we lost a PC peripheral customer, which accounted for
approximately $0.4 million, or 11% of our total revenues and 14% of license
revenues, in the three months ended September 30, 2000. These decreases were
partially offset by modest increases in other customer arrangements. Due to the
termination of a contract with an Internet appliance chip manufacturer and an
Internet appliance OEM customer, license revenues decreased by approximately
$0.7 million for the three months ended September 30, 2001 compared with the
three months ended September 30, 2000. Services revenues decreased 100% from
$0.4 million for the three months ended September 30, 2000 to zero for the three
months ended September 30, 2001 due to the sale of our consumer electronics and
Internet appliance assets.

     Hardware revenues decreased 43% from $0.5 million for the three months
ended September 30, 2000 to $0.3 million for the three months ended September
30, 2001. The decrease was attributable to decreased Internet appliance units
sold in the third quarter of 2001 and the sale of the assets of our Internet
appliance business in March 2001.

     Our revenues are derived from a small number of customers. In the three
months ended September 30, 2001, three customers, Matrox Graphics, Inc.,
Gateway, Inc. and IPC Archtec accounted for 18%, 21% and 21%, respectively, of
our total revenues. We expect that a significant portion of our revenues will
continue to be concentrated among a relatively small number of customers for the
foreseeable future. Revenues from particular customers may vary widely from
period to period depending on the addition of new contracts and the volumes and
prices at which our licensees sell RAVISENT-enabled products to end users in any
given period.

     We sell our products primarily to personal computer and computer graphics
chip and board manufacturers and distributors in North America, Europe, and the
Pacific Rim. In the three months ended September 30, 2001 companies based in
North America accounted for a majority of our revenues. Sales outside of the
United States have been primarily through U.S. manufacturers that distribute
their products to end users overseas and contract manufacturers based in Asia.

Cost of Revenues. Cost of revenues consist primarily of license fees paid to
third parties for technologies incorporated into our products, including Dolby
Digital technology, hardware components sold to manufacturing firms, and costs
associated with the delivery of our products. Cost of revenues decreased
60% from approximately $1.3 million for the three months ended September 30,
2000 to $0.5 million for the three months ended September 30, 2001. The decrease
in cost of revenues associated with license revenues of $0.5 million corresponds
to the decrease in license revenues partially offset by increased Dolby Digital
fees as a result of lower unit volumes.

Gross Profit. Gross profit decreased from $3.0 million for the three months
ended September 30, 2000 to $0.3 million for the three months ended September
30, 2001. For the three months ended September 30, 2001, 68% of our total
revenues were derived from license revenues, and there were no services
revenues, in comparison to 79% and 10%, respectively, for the comparable three
months in 2000. The gross profit percentage for license revenues and services
revenues is much higher than that from hardware sales. Due to the

                                      29
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

decreases in license and services revenues, gross profit decreased from 70% to
39% as a percentage of total revenues. Additionally, increases in Dolby digital
fees, as previously described, and decreases in overall service and license
revenues also contributed to the decrease both in absolute dollars and as a
percentage of revenues for the quarter ended September 30, 2001.

Other Research and Development Expenses. Research and development expenses
consist of staff and staff related costs, professional and other development
related support costs associated with the development of new products,
customization of existing products for customers, quality assurance and testing.
Research and development expenses decreased 60%, from $2.7 million for the
quarter ended September 30, 2000, to $1.1 million for the quarter ended
September 30, 2001. As a percentage of total revenues, research and development
expenses increased from 64% to 129%. The increase in research and development
expenses as a percentage of revenues resulted from lower revenues. The decrease
in research and development expenses in absolute dollars resulted from the
elimination of the consumer electronics and Internet appliance development teams
in the first quarter of 2001, which contributed approximately $0.7 million and
$0.8 million respectively to the decrease. While we expect research and
development expenses to increase once the acquisition of eMation is completed in
the fourth quarter of 2001, we expect research and development expenses to
decrease overall in 2001 compared to 2000 as a result of the sales of the assets
of our consumer electronics and Internet appliance businesses in March 2001.

Non-cash research and development expense. Non-cash expense relates to both
compensation related to stock options and acquisition-related stock
compensation. Non-cash research and development expense increased 140% from $0.1
million for the quarter ended September 30, 2000 to $0.2 million for the quarter
ended September 30, 2001. The increase over the prior year is due to the
immediate recognition of the balance of deferred compensation of approximately
$0.1 million recorded in connection with the acquisition of Cinax as a result of
the resolution of the contingencies associated with a portion of the
consideration previously held in escrow.

Other Sales and Marketing Expenses. Other sales and marketing expenses consist
of salaries, travel expenses and costs associated with trade shows, advertising
and other marketing efforts, as well as technical support costs. Sales and
marketing expenses decreased 75% from $4.3 million for the quarter ended
September 30, 2000 to $1.1 million for the quarter ended September 30, 2001. As
a percentage of total revenues, sales and marketing expenses increased from 102%
to 128%. The increase in sales and marketing expenses as a percentage of total
revenues resulted from our lower quarterly revenue.  The $3.2 million decrease
was due to a reduction of $2.5 million in advertising costs associated with our
American Trading S.A. distribution rights agreement and a decrease of
approximately $0.7 million in sales and marketing expenses resulting from the
sale of our Internet appliance assets. While we expect sales and marketing
expenses to increase once the acquisition of eMation is completed in the fourth
quarter of 2001, we expect sales and marketing expenses to decrease overall in
2001 compared to 2000 due to the sales of the assets of our consumer electronics
and Internet appliance assets in March 2001.

Non-cash sales and marketing expense. Non-cash sales and marketing expense
relates to compensation related to stock options. Non-cash sales and marketing
expense decreased by $1.5 million for the quarter ended September 30, 2001. The
decrease relates to the amortization of a warrant issued in connection with the
American Trading S.A. agreement in June 2000. The warrant was canceled in
the first quarter of 2001.

Other General and Administrative Expenses. General and administrative expenses
include personnel and support costs for our finance, human resources,
information systems and other management departments. General and administrative
expenses increased 26% from $2.1 million for the quarter ended September 30,
2000 to $2.6 million for the quarter ended September 30, 2001. As a percentage
of total revenues, general and administrative expenses increased from 49% to
312%. The increase in general and administrative expenses as a percentage of
total revenues resulted from our lower quarterly revenues.

                                      30
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

The $0.5 million increase was due to $0.6 million of severance expense recorded
during the quarter as well as to increases in an employee retention plan and
recruitment expenses of $0.3 and $0.2 million, respectively, offset by decreases
in rent, professional fees and other administrative expenses of approximately
$0.6 million. While we expect general and administrative expenses to increase
once the acquisition of eMation is completed in the fourth quarter of
2001,overall we expect general and administrative expenses to decrease in 2001
compared to 2000 due to the sales of the assets of our consumer electronics and
Internet appliance businesses in March 2001.

Non-cash general and administrative expense. Non-cash general and administrative
expense relates primarily to amortization of compensation related to stock
options. Non-cash general and administrative expense increased 287% from $ 0.1
million for the quarter ended September 30, 2000 to option $0.3 million for the
quarter ended September 30, 2001. The increase relates to stock options granted
in June 2001 at less than fair market value and is being amortized over the
vesting period of twelve months.

Provision for Doubtful Accounts. The provisions for doubtful accounts represent
management's best estimate of the doubtful accounts for each period. The
provision decreased $0.1 million for the three months ended September
30, 2001.

Depreciation and Amortization. We recorded depreciation and amortization expense
of $0.4 million for the quarter ended September 30, 2001, compared to $1.5
million for the quarter ended September 30, 2000. The decrease is attributable
to the reduction of goodwill associated with Viona, the assets of which were
sold on March 1, 2001 in connection with the sale of our consumer electronics
assets and Teknema, the assets of which were sold on March 23, 2001 in
connection with the sale of our Internet appliance assets.

Interest (Income) and Expense, Net. Net interest income increased by $0.1
million, or 20%, for the three months ended September 30, 2001 compared to the
comparable period in 2000. The increase is the result of greater average cash on
hand for the three-month period in 2001 derived from the sale of our consumer
electronics and Internet appliance assets.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000.

The following table sets forth, for the periods indicated, the amount and
percentage of total revenues represented by certain items reflected in our
consolidated statements of operations:

                          RAVISENT Technologies Inc.
             Unaudited Consolidated Statements of Operations Data
                                (In thousands)



<TABLE>
<CAPTION>
                                                     Nine Months Ended September 30,
                                                     -------------------------------
                                                             2001                     2000
                                                             -----                    ----
                                                                  Percentage     Amount       Percentage
                                                     Amount       of Revenue                  of Revenue
<S>                                                  <C>          <C>           <C>           <C>
Revenues:
   License Fees                                      $  3,607            81%    $    9,272           63%
   Service Fees                                           407             9            701            5
</TABLE>

                                      31
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

<TABLE>
<S>                                                  <C>              <C>       <C>                  <C>
   Hardware                                               437            10          4,811              32
                                                     --------         -----     ----------           -----
     Total revenues                                     4,451           100         14,784             100
                                                     --------         -----     ----------           -----

Cost of revenues:
   License fees                                         1,162            26          2,425              16
   Service fees                                            94             2            410               3
   Hardware                                               444            10          4,412              30
   Inventory charge                                    13,420           302              -               -
                                                     --------         -----     ----------           -----
     Total cost of revenues                            15,120           340          7,247              49
                                                     --------         -----     ----------           -----

Gross profit                                          (10,669)         (240)         7,537              51

Research and development
    Non-cash compensation                               2,082            47            257               2
    Other research and development expense              4,490           101          7,799              53
Sales and marketing
    Non-cash compensation                                  87             2          2,027              14
    Other selling and marketing expense                 5,409           122          8,836              60
General and administrative
    Non-cash compensation                                 387             8            167               1
    Other general and administrative expense            6,497           146          7,654              52
    Provision for doubtful accounts                       784            17            186               1
Depreciation and amortization                           2,413            54          4,230              28
Acquired in-process research and development                -             -          1,373               9
                                                     --------         -----     ----------           -----

Operating loss                                        (32,818)         (737)       (24,992)           (169)

Gains on sales of assets                               52,037         1,169              -               -
Interest (income) expense, net and other
(income)                                               (1,567)          (35)        (1,647)            (11)
                                                     --------         -----                          -----

Income (loss) before income taxes                      20,786           467        (23,345)           (158)

Provision for income taxes                              1,123            25             44               -
                                                     --------         -----     ----------           -----

Net income (loss)                                    $ 19,663           442%    $  (23,389)           (158)%
                                                     ========         =====     ==========            ====
</TABLE>

Revenues. Total revenues decreased 70% from $14.8 million for the nine months
ended September 30, 2000 to $4.5 million for the nine months ended September 30,
2001. License revenues decreased 61% from $9.3 million to $3.6 million for the
nine months ended September 30, 2001, as a result of a decline in Internet
appliance revenues of approximately $1.0 million, continued weakness in the PC
industry and increased competition resulting in lower per unit selling prices in
the PC DVD market, totaling approximately $4.7 million. As a result of increased
competition, we lost a PC-peripherals manufacturing customer, which accounted
for approximately $2.1 million, or 14%, of our total revenues and 23% of our
license revenues, in the nine months ended September 30, 2000. In addition, as a
result of increased competition, we lost two PC OEM customers, which accounted
for the loss of approximately $2.8 million in revenues, or 19% of our total
revenues and 30% of license revenues, in the nine months ended September 30,
2000. Also contributing to the decline in license revenues were declines in the
revenues of three PC OEM customers

                                      32
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                          RAVISENT TECHNOLOGIES INC.

of approximately $1.0 million, which was partially offset by a one-time license
grant for $1.3 million to a new OEM customer. To the degree these types of
arrangements cannot be made with our customers in the future, license revenues
may decrease. Due to the termination of a contract with an Internet appliance
chip manufacturer and an Internet appliance OEM customer, license revenues
decreased by approximately $1.0 million for the nine months ended September 30,
2001 compared with the nine months ended September 30, 2000. Services revenues
decreased 42% from $0.7 million to $0.4 million in the nine months ended
September 30, 2001 due to the sale of our consumer electronics and Internet
appliance assets.

  Hardware revenues decreased 91% from $4.8 million for the nine months ended
September 30, 2000 to $0.4 million for the nine months ended September 30, 2001.
The decrease was primarily attributable to decreased Internet appliance units
sold in the third quarter of 2001 and the sale of the assets of our Internet
appliance business in March 2001. To the degree our current inventories are sold
in the future, we expect minimal gross profit from these sales.

  Our revenues are derived from a small number of customers. In the nine months
ended September 30, 2001, three customers, Matrox Graphics, Inc., Gateway, Inc.
and another customer accounted for 20%, 11% and 28%, respectively, of our total
revenues. We expect that a significant portion of our revenues will continue to
be concentrated among a relatively small number of customers for the foreseeable
future. Revenues from particular customers may vary widely from period to period
depending on the addition of new contracts and the volumes and prices at which
our licensees sell RAVISENT-enabled products to end users in any given period.

  We sell our products primarily to personal computer and computer graphics chip
and board manufacturers and distributors in North America, Europe, and the
Pacific Rim. In the nine months ended September 30, 2001 companies based in
North America accounted for a majority of our revenues. Sales outside of the
United States have been primarily through U.S. manufacturers that distribute
their products to end users overseas and contract manufacturers based in Asia.

Cost of Revenues. Cost of revenues consist of license fees paid to third parties
for technologies incorporated into our products, including Dolby Digital
technology, hardware components sold to manufacturing firms, and costs
associated with the delivery of Software CineMaster. Cost of revenues increased
109% from approximately $7.2 million for the nine months ended September 30,
2000 to $15.1 million for the nine months ended September 30, 2001, due
principally to a charge for inventory reserves of approximately $13.4 million
recorded for the nine months ended September 30, 2001. Reserves of approximately
$10.2 million were recorded for components, and approximately $3.2 million for
Internet set-top boxes. The reserves were determined based on various factors
including current market prices, industry conditions, alternative uses and
distribution channels and manufacturers' warranties.

  Excluding the charges for inventory reserves cost of revenues decreased 77%
from $7.2 million for the nine months ended September 30, 2000 to $1.7 million
for the nine months ended September 30, 2001. The decrease in cost of sales
associated with license revenues of $1.3 million corresponds to the decrease in
license revenues partially offset by increased in Dolby Digital fees for lower
unit volumes. The decrease in cost of sales associated with hardware revenues of
$3.9 million corresponds with the decrease in hardware revenues.

Gross Profit. Gross profit decreased from $7.5 million for the nine months ended
September 30, 2000 to $(10.7) million for the nine months ended September 30,
2001, primarily due to a charge

                                      33
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

for inventory reserves of approximately $13.4 million. Excluding the inventory
charge, gross profit decreased from $7.5 million to $2.8 million due to lower
revenues.

For the nine months ended September 30, 2001, 81% and 9% of our total
revenues were derived from license and services revenues respectively, in
comparison to 63% and 5%, respectively, for the comparable nine months in 2000.
The gross profit percentage for license revenues and services revenues is much
higher than that from hardware sales. As a percentage of total revenues, gross
profit, excluding the charges recorded for inventory reserves, increased from
51% for the nine months ended September 30, 2000 to 62% for the nine months
ended September 30, 2001, primarily as a result of a higher proportion of
license revenues partially offset by an increase in the per-unit cost of license
fees for technologies incorporated into our products, and a decrease in services
revenues due to the sale of our consumer electronics assets.

Other Research and Development Expenses. Other research and development expenses
consist of staff, staff related, professional and other development related
support costs associated with the development of new products, customization of
existing products for customers, quality assurance and testing. Research and
development expenses decreased 42%, from $7.8 million for the nine months ended
September 30, 2000, to $4.5 million for the nine months ended September 30,
2001. As a percentage of total revenues, research and development expenses
increased from 53% to 101%. The increase in research and development expenses as
a percentage of total revenues resulted from lower revenues. The decrease in
research and development expenses was due to the elimination of the consumer
electronics and Internet appliance development teams in the first quarter of
2001, which contributed approximately $1.8 million and $1.7 million respectively
to the decrease. This decrease was partially offset by increases in staff
expenses in connection with our Cinax acquisition. While we expect research and
development expenses to increase once the acquisition of eMation is completed in
the fourth quarter of 2001, we expect research and development expenses to
decrease overall in 2001 compared to 2000 due to the sales of the assets of our
consumer electronics and Internet appliance businesses in March 2001.

Non-cash Research and Development Expense. Non-cash research and development
expense relates to both compensation related to stock options and acquisition-
related stock compensation. Non-cash research and development expense increased
710% from $0.2 million for the nine months ended September 30, 2000 to $2.1
million for the nine months ended September 30, 2001. The increase of $1.5
million over the prior year is due to the immediate recognition of the prepaid
and deferred stock compensation related to reductions in staffing in connection
with the closing of our Vancouver office in March 2001.  The remaining increase
of $0.4 million is attributable to stock options granted in September 2000 at
less than fair market value.

Other Sales and Marketing Expenses. Other selling and marketing expenses consist
of salaries, travel expenses and costs associated with trade shows, advertising
and other marketing efforts, as well as technical support costs. Sales and
marketing expenses decreased 39% from $8.8 million for the nine months ended
September 30, 2000 to $5.4 million for the nine months ended September 30, 2001.
As a percentage of total revenues, sales and marketing expenses increased from
60% to 122%. The increase in other selling and marketing expenses as a
percentage of total revenues resulted from lower revenues.  The decrease in
sales and marketing expense relates to the sale of the consumer electronics and
Internet appliance businesses, which contributed $2.3 million and $0.8 million
respectively for the nine-month period ending September 30, 2001. While we
expect sales and marketing expenses to increase once the acquisition of eMation
Ltd. is completed in the fourth quarter of 2001, we expect other selling and
marketing expenses to decrease overall in 2001 compared to 2000 as the assets of
our consumer electronics and Internet appliance businesses were sold in March
2001 and other staff reductions have occurred.

                                      34
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Non-cash Selling and Marketing Expense. Non-cash selling and marketing expense
relates to compensation related to stock options. Non-cash sales and marketing
expense decreased 96% from $2.0 million for the nine months ended September 30,
2000 to $0.1 million for the nine months ended September 30, 2001. The decrease
relates the amortization of  warrants for $1.4 million issued in connection with
the American Trading S.A. agreement in June 2000.  These warrants were cancelled
in the first quarter of 2001. In addition, the decrease is also attributable to
a one-time charge of $0.3 million for the modification of stock options held by
a former employee. Stock options granted to employees at less than fair market
value are recorded as deferred compensation expense and amortized over the
applicable vesting periods of two to four years.

Other General and Administrative Expenses. Other general and administrative
expenses consists of staff, staff related, and support costs for our finance,
human resources, information systems and other management departments. Other
general and administrative expenses decreased 15% from $7.7 million for the nine
months ended September 30, 2000 to $6.5 million for the nine months ended
September 30, 2001. As a percentage of total revenues, other general and
administrative expenses increased from 52% to 146%. Other general and
administrative expenses increased as a percentage of total revenues due to the
decrease in total revenues.  In absolute dollars, the decrease in other general
and administrative expenses was due to decreases in our professional fees
related to our class action litigation of $0.5 million, professional fees in
connection with our 1999 restatement of $0.5 million, and travel and conference
expenses of $0.6 million offset by an increase in severance of $0.6 million.
Additionally, decreases in other expenses including rent and consultants of
$0.4 million, were offset by increases in retention expense for $0.3 million.
While we expect other general and administrative expenses to increase once the
acquisition of eMation is completed in the fourth quarter of 2001, overall we
expect other general and administrative expenses to decrease in 2001 compared to
2000 as the assets of our consumer electronics and Internet appliance businesses
were sold in March 2001 and other staff reductions have occurred.

Provision for Doubtful Accounts. The provisions for doubtful accounts represent
management's best estimate of the doubtful accounts for each period. The
provision increased 322% from $0.2 million for the nine months ended September
30, 2000 to $0.8 million for the nine months ended September 30, 2001. The
increase was due to uncollectible accounts associated with the Internet
appliance products and services.

Non-cash General and Administrative Expense. Non-cash general and administrative
expense relates to amortization of compensation related to stock options. Non-
cash general and administrative expense increased 132% from $0.2 million  for
the nine months ended September 30, 2000 to $0.4 million for the nine months
ended September 30, 2001. The increase is the result of amortization of deferred
compensation recorded in connection with stock options granted to employees at
less than fair market value on the date of grant in June 2001.

Depreciation and Amortization. We recorded depreciation and amortization of $2.4
million for the nine months ended September 30, 2001, compared to $4.2 million
for the nine months ended September 30, 2000. The decrease relates to a decrease
in the amortization of goodwill for our customer electronics business of
approximately $0.6 million and Internet appliance business of approximately $2.0
million, both of which were sold in March 2001, offset by increases in
amortization of goodwill from our Cinax acquisition in August 2000, of $0.8
million, including an impairment charge for the workforce in place intangible
asset associated with the closing of our Vancouver office in March 2001. See
"Acquired In-Process Research and Development Expense."

                                      35
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

Other (Income) and Expense

  As a result of the sale of the assets related to our consumer electronics
business completed on March 1, 2001, we recorded a gain on this sale of
approximately $47.5 million for the nine months ended September 30, 2001.

  As a result of the sale of assets related to our Internet appliance business
completed on March 23, 2001, we recorded a gain on this sale of approximately
$4.5 million for the nine months ended September 30, 2001.

Interest (Income) and Expense, Net. Net interest income decreased by $0.1
million, or 5%, for the nine months ended September 30, 2001 compared to the
comparable period in 2000. The decrease is the result of lower average cash on
hand for the nine month period in 2001 than in 2000, combined with lower bank
interest rates in 2001 than in 2000.

Acquired In-Process Research and Development

  In August 2000, we completed the acquisition of Cinax Designs Inc. The
acquisition of Cinax was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development, which resulted in a charge of $1.4 million to our operations in
August 2000. As of the acquisition date, Cinax was conducting ongoing research
and development into new products in the form of two projects, including
enhancements to the existing products previously developed by Cinax. At the date
of acquisition, these projects had not reached technological feasibility and
there was no alternative future use for them. The two research and development
projects included:

  WinVCR version 2. This product enables computer users to record real-time MPEG
video straight to their hard drives. The current upgrade includes a substantial
amount of new features such as better programmability as well as faster,
embedded encoding capabilities with MPEG-2. At the time of acquisition, this
development project was approximately 75% complete.

  MediaLock. This product is designed for rights management of video
distribution over digital networks. This product is expected to allow content
producers to easily protect their copyrights prior to distribution with its
frame scrambling, playtime decryption and unique password system capabilities.
At the time of acquisition, this development project was approximately 50%
complete.

  In November 1999, we completed the acquisition of Teknema, Inc. The
acquisition of Teknema was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development technology, which resulted in a charge of $1.9 million to our
operations in November 1999. The in-process research and development technology
was valued using the cash flow model, under which projected income and expenses
attributable to the purchased technology were identified, and potential income
streams were discounted using a 20%-30% discount rate for risks, probabilities
and uncertainties, including the stage of development of the technology,
viability of target markets, and other factors.

  As of the acquisition date, Teknema was conducting ongoing research and
development into three new projects including enhancements to products
previously developed by Teknema. At the date of acquisition, these projects had
not reached technological feasibility and there was no alternative future use
for them.

                                      36
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

  In March 2001, we sold all of the intellectual property that we acquired from
Teknema to Phoenix Technologies as part of the sale of our Internet appliance
business. The remaining unamortized book value of the goodwill recorded in
connection with the acquisition of Teknema, which was being amortized over its
estimated useful life of four years, is included in the net gain on the sale of
assets.

  In April 1998, we completed the acquisition of Viona, a company specializing
in the development of digital video technology. We paid $6.1 million in cash, of
which $2.6 million was paid at closing, $2.1 million was paid during 1999, and
$1.4 million was paid in equal installments at the end of the next three fiscal
years. In January 2001 the final installment was paid. In addition, we issued
1,204,820 shares of RAVISENT common stock then valued at $4.8 million and
incurred transaction costs of $0.8 million. The final installment was paid in
January 2001.

  The acquisition of Viona was recorded under the purchase method of accounting.
A portion of the purchase price was allocated to in-process research and
development technology, which resulted in a charge of approximately $7.9 million
to our operations in April 1998. The in-process research and development
technology was valued using a cash flow model, under which projected income and
expenses attributable to the purchased technology were identified, and potential
income streams were discounted using a 30%-35% discount rate for risks,
probabilities and uncertainties, including the stage of development of the
technology, viability of target markets, and other factors.

  As of the acquisition date, Viona was conducting significant ongoing research
and development into five new software and hardware products including
enhancements to the existing digital video and audio system solutions previously
developed by us. At the date of acquisition, these projects had not reached
technological feasibility and there was no alternative future use for them.

  In March 2001, we sold the assets, including intellectual property, that we
used in the consumer electronics business that we acquired from VIONA. The
remaining unamortized book value of the goodwill recorded in connection with the
acquisition of Viona, which was being amortized over its estimated useful life
of four years, and the net book value of all of Viona's furniture and equipment
is included in the net gain on the sale of assets.


LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the issuance
and sale of debt and equity securities to investors including our initial public
offering which was completed on July 16, 1999. As of September 30, 2001 we had
approximately $56.4 million in cash and cash equivalents, including $1.8 and
$0.8 million of the proceeds from the sale of our Internet appliance and
consumer electronics assets in March 2001, which is held in escrow by third
parties for indemnification purposes.

  Net cash used in operating activities for the nine months ended September 30,
2001 was $19.8 million, compared to net cash used in operating activities of
$23.4 million for the nine months ended September 30, 2000. Cash used in
operating activities for this period was primarily the result of net income,
adjusted for non-recurring gains, provisions for inventory, non-cash
compensation, and payments to vendors.

                                      37
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

  Net cash provided by investing activities for the nine months ended September
30, 2001 was $65.2 million, compared to net cash used in investing activities of
$4.0 million for the nine months ended September 30, 2000. Cash provided by
investing activities for the nine months ended September 30, 2001 consisted
primarily of the net proceeds from the sales of assets related to our consumer
electronics and Internet appliance businesses. Cash used in investing activities
for the nine months ended September 30, 2000 consisted primarily of net
purchases of furniture and equipment and cash used for acquisition purposes.

  Net cash provided by financing activities of $1.3 million for the nine months
ended September 30, 2001 was attributable to the net proceeds received from the
exercise of stock options. Net cash provided by financing activities of $0.8
million for the nine months ended September 30, 2000 was attributable to the net
proceeds received from the exercise of stock options.

  As of September 30, 2001, our principal commitments consisted of obligations
outstanding under equipment leases. The equipment leasing arrangements consist
primarily of paying rental fees to third party leasing providers that maintain
title to the leased equipment at interest rates between 8% to 18%. In most
cases, there are no obligations for us to purchase the equipment at the end of
the term. Although we have no material commitments for capital expenditures, we
anticipate minimal increases in our capital expenditures as our needs in
operations, infrastructure and personnel arise.

  We had a $5.0 million line of credit with Silicon Valley Bank. The line
matured in June 2001, but was extended by the bank until August 2001. We are
currently negotiating with the bank to have the facility extended through June
2002.

  Pursuant to a Secured Promissory Note and Agreement dated July 26, 2001,
the Company agreed to advance eMation Ltd. (Note 1a) a bridge loan (the "Loan")
of up to an aggregate of $2.5 million for the purpose of financing operating
expenses incurred in the normal course of business. In October 2001, we amended
the Secured Promissory Note and Agreement to lend up to an aggregate of $5
million. The Loan contains various terms and conditions including an interest
rate of three-month LIBOR plus 2.5% (5.097% as of September 30, 2001). The
principal balance of the loan including interest is payable if the Share
Purchase Agreement ("SPA") between Ravisent, eMation and certain shareholders of
eMation is terminated, for certain conditions specified in the SPA, on various
dates ranging from thirteen to fifty months from the date of termination. In the
event


                                      38
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

that the eMation acqusition is not consummated, the principal and interest are
due and payable on the earliest date on which any principal amounts owed by
eMation to Bank Leumi become due and payable. As of September 30, 2001, $2.5
million had been advanced to eMation under the loan.

  In March 2001, we completed the sale of the assets of our consumer electronics
business to STMicroelectronics and received approximately $55.6 million in cash
consideration, of which $0.8 million is being held by a third party in escrow
for indemnification purposes until September 2002.

  In March 2001, we sold the assets of our Internet appliance business,
excluding inventory, to Phoenix Technologies for $18.0 million in cash
consideration, of which $1.8 million is being held in escrow by a third party
until March 2002 for indemnification purposes.

  In September 2001, our Board of Directors authorized us to begin a stock
repurchase program to acquire up to $10 million worth of shares of our common
stock. The shares may be purchased from time to time at prevailing market prices
through open market or unsolicited negotiated transactions, depending upon
market conditions. As of September 30, 2001 we repurchased 97,800 shares
for an aggregate cost of approximately $148,000 including commissions, at an
average market price per share of approximately $1.47.

  We believe that our current cash and cash equivalents balance and cash
anticipated to be provided by operations, if any, together with any borrowings
available under our line of credit, will be adequate to meet our cash needs for
at least the next two years.

                                      39
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  We develop products in the United States and sell such products in North
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all sales are currently made in U.S. dollars,
a strengthening of the dollar could make our products less competitive in
foreign markets. We do not use derivative instruments to hedge our foreign
exchange risk. Our interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since the majority of our investments are
in short-term instruments. Due to the nature of our short-term investments, we
have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business and the value of our shares is subject to numerous risks. Some of
these risks are described above and certain additional risks are described
below.

Risk Factors

We are currently undergoing a business transition that may adversely affect our
company

  In March 2001, we announced the sale of our consumer electronics business and
our Internet appliance business and that we were seeking strategic alternatives
for our company. The strategic alternative we have chosen is the acquisition of
eMation. Although we believe that the acquisition of eMation is in the best
interests of our stockholders, this acquisition may increase our costs as we
proceed to modify our business plan and operations.

  As part of the sale of our consumer electronics and Internet appliance
businesses, approximately 89 of our employees accepted employment with either
STMicroelectronics or Phoenix Technologies. These employees were dedicated
primarily to research and development activities in the digital media market.
The reduction in our research and development workforce has adversely affected
our ability to offer new products in the digital media market. The reduction in
our sales force has also adversely affected our ability to sell our products.

  These strategic transactions may negatively impact relationships with our
partners, distributors and customers. There can be no guarantees that we can
maintain or re-establish such relationships or develop new customer, partner and
distributor relationships in a timely manner, or at all, to overcome any loss of
business resulting from our business transition. As a result of this business
transition, it will be difficult to forecast our financial performance. We
expect that both sales and operating income will be adversely affected and we
expect to report operating losses in fiscal 2001.

We currently have a limited product offering and may not have a diversified
business if the acquisition of eMation is not completed

  Due to the disposition of our consumer electronics business and our Internet
appliance business, we currently have a limited offering of products that can be
used only in personal computers. Pursuant to the terms of our agreement with
STMicroelectronics, we may not participate in

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                          RAVISENT TECHNOLOGIES INC.

significant aspects of the consumer electronics market prior to March 2006. As a
result, we are subject to economic pressures within a limited industry, which
may result in a material adverse effect on our business and financial condition.


We have a limited operating history and our historical financial information is
of limited value in projecting our future operating results or evaluating our
operating history

  As a result of our relatively brief operating history and because our business
model has changed significantly since inception and will change further with the
acquisition of eMation, we believe that comparing different periods of our
operating results is not meaningful and you should not rely on the results for
any period as an indication of our future performance. In addition, fluctuations
in our operating results have caused, and may in the future continue to cause us
to perform below the expectations of public market analysts and investors. If
our results continue to fall below market expectations, the price of our common
stock may continue to fall significantly. Our limited operating results have
varied widely in the past, and we expect that they will continue to vary
significantly from quarter-to- quarter as we attempt to establish our products
in the market and transition to a new business model.

You should expect our quarterly operating results to fluctuate in future periods
and they may fail to meet the expectations of securities analysts or investors,
which could cause our stock price to decline

Our revenues and operating results will vary significantly from quarter-to-
quarter due to a number of factors, including:

  . variations in demand for our products and services, which are relatively
    few in number;

  . the timing of sales of our products and services and the timing of new
    releases of personal computer systems and semiconductors that incorporate
    our products;

  . delays in introducing our products and services;

  . changes in our pricing policies or the pricing policies of our
    competitors;

  . the timing and accuracy of royalty reports received from our customers,
    which we have not audited to date;

  . the timing of large contracts that materially affect our operating results
    in a given quarter;

  . changes in the usage of digital media;

  . our ability to develop and attain market acceptance of enhancements to our
    products;

  . new product introductions by competitors;

  . the mix of license and service hardware revenues;

  . unanticipated customer demands which impact on our ability to deliver our
    products and ultimately recognize revenues;

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                          RAVISENT TECHNOLOGIES INC.

  . the mix of domestic and international sales;

  . costs related to the acquisition of technologies or businesses, including,
    but not limited to, the eMation acquisition;

  . our ability to attract, integrate, train, retain and motivate a substantial
    number of sales and marketing, research and development, administrative and
    product management personnel;

  . our ability to expand our operations; and

  . global economic conditions as well as those specific to personal computer,
    peripherals and semiconductor manufacturers and other providers of digital
    video and audio stream management solutions.

  We receive either a flat fee from OEMs or a license royalty for each personal
computer or peripheral sold that contains our products and a royalty for each
silicon device sold by a semiconductor manufacturer that incorporates our
technology. In collecting these fees, preparing our financial reports,
projections and budgets and in directing our sales efforts and product
development, we rely on our customers to accurately report the number of units
sold. We have never undertaken an audit of any of our customers to verify that
their reported sales unit numbers were accurate. These reports are subject to
potential revision by these manufacturers. If any of our customers revised their
product sales reports, we might be required to adjust our revenues for
subsequent periods, which could harm our business and the price of our common
stock.

  We determine our operating expenses largely on the basis of anticipated
revenue trends and a high percentage of our expenses are fixed in the short term
and are significant. As a result, any delay in generating or recognizing
revenues could cause significant variations in our operating results from
quarter-to-quarter and could result in substantial operating losses.

  Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. In
future quarters, our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
fall significantly.

Uncertainties exist regarding our stock repurchase program

  On September 27, 2001, we announced that our board of directors had approved
the repurchase of up to $10 million worth of its outstanding shares of common
stock. We indicated that we may, within the discretion of management, to
complete these purchases over a 12-month period. Stock repurchase activities are
subject to certain pricing restrictions, stock market forces, management
discretion and various regulatory requirements. As a result, there can be no
assurance as to the timing and/or amount of shares that we may repurchase under
this stock repurchase program.

We face inventory risks that may be increased by our business shift away from
the Internet appliance business

  As of September 30, 2001, we have approximately $8.1 million of inventory, the
majority of which was acquired from May through October 2000 to support
production of our Internet appliance hardware designs. This inventory was
purchased to accommodate long lead times for components in order to meet the
anticipated demand for our Internet appliance products (the

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                          RAVISENT TECHNOLOGIES INC.

Internet screen phone, set-top box and Nucleo platform). The sale of our
Internet appliance business included the assignment of our Internet appliance
customer contracts, but not the inventory to support production of the
associated products. While we have obtained assurances that we will be the
preferred supplier of inventory to Phoenix Technologies for these products, we
may not be able to sell all of the inventory that we currently have.
Furthermore, even if our efforts to sell this inventory are successful, we may
not be able to recover the full cost of the inventory due to market price
fluctuations and other market conditions.

We have never been profitable and may never achieve profitability in the future

  We had a net loss from operations of approximately $32.8 million for the nine
months ended September 30, 2001. To date, we have not achieved profitability on
an annual basis and revenues from our software and hardware design solutions may
not result in sufficient revenues to sustain profitability in any future period.
In addition, we cannot be certain that we can increase profitability,
particularly to the extent that we face price competition. As a result, we will
need to generate significant revenues to attain profitability. Increasing
competition may cause our prices to decline, which would harm our operating
results. We expect our prices for our digital entertainment products to decline
over the next few years. We expect to face increased competition in markets
where we license our digital entertainment products, which will make it more
difficult to maintain our prices and profit margins even if our sales volumes
increase. If anticipated increases in sales volume do not keep pace with
anticipated pricing pressures, our revenues would decline and our business could
be harmed. Despite our efforts to introduce enhancements to our products, we may
not be successful in maintaining our pricing.

Our business significantly depends upon our CineMaster products, and it is
uncertain whether the market will continue to accept these products

  In the nine month period ending September 30, 2001, we derived approximately
95% of our license revenues from sales of our CineMaster products. We expect
that license revenues from our CineMaster products will continue to account for
a significant portion of our revenues for the foreseeable future. In particular,
our business will be harmed if our existing manufacturing customers do not
continue to incorporate our CineMaster products or if we are unable to obtain
new customers for our CineMaster products. In seeking market acceptance, it may
be difficult for our digital solutions to displace incumbent solutions employed
by manufacturers not currently licensing our CineMaster products. Manufacturers
that are using other solutions would need to invest in additional training and
development tools and convert software for existing hardware solutions in order
to change to a new digital solution. Accordingly, potential customers may not
accept our digital solutions, which could limit our growth opportunities and
harm our prospects.

The loss of a single customer could significantly harm our business because a
majority of our revenues is derived from a small number of customers

  A substantial portion of our license revenues come from a small number of
customers. In the nine months ending September 30, 2001, three customers Matrox
Graphics, Gateway, Inc. and another customer, accounted for 20%, 11% and 28%,
respectively, of our total revenues and 9%, 8% and 45%, respectively, of our
total gross profit, excluding inventory charges of $13.4 million. We expect a
relatively small number of customers to account for a majority of our revenues
and gross profit, if any, for the foreseeable future. The loss of any of these
or other primary customers, or a material decrease in revenues from these
customers, would immediately harm our business. As a result of the sales of our
consumer electronics and Internet appliance businesses, we transferred
substantially all of our customers from our consumer electronics business,

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                          RAVISENT TECHNOLOGIES INC.

including Microsoft Corporation, Funai Electric Co., Ltd., and Cyber Home
Entertainment to STMicroelectronics and a portion of our Internet appliance
customers to Phoenix Technologies.

Since most of our revenues are derived from a small number of customers,
problems those customers experience will directly impact our business

  As a result of our concentrated customer base, problems that our customers
experience could materially harm our business. These risks are beyond our
control. For example, because we do not control the business practices of our
customers, we do not influence the degree to which they promote our technology
or set the prices at which the products incorporating our technology are sold to
end users. Risks that may influence the success or failure of the personal
computer manufacturers that are our customers include:

  . the competition the manufacturer faces and the market acceptance of its
    products;

  . the engineering, marketing and management capabilities of the manufacturer
    and the technical challenges unrelated to our technology that it faces in
    developing its products;

  . the financial and other resources of the manufacturer;

  . new governmental regulations or changes in taxes or tariffs applicable to
    the manufacturer; and

  . the failure of third parties to develop and introduce content for digital
    entertainment applications in a timely fashion.

  The inability of our customers or us to successfully address any of these
risks could harm our business.

Since our customers have not executed long-term contracts with us, our revenues
could decline significantly with little or no notice

  Our agreements with our customers are typically of limited duration and do not
contain minimum purchase commitments or are terminable with little or no notice.
Rather than long-term contracts, we typically enter into licensing agreements
with one-year terms that automatically renew each subsequent year unless either
party receives a written cancellation. As a result, many of our customers could
elect not to renew these agreements and we could have little warning of this
election. Also, since our agreements with our customers do not include minimum
purchase requirements, the demand for our products is unpredictable. As a result
of competition or fluctuations in demand, we could be required to reach an
accommodation with our customers with respect to contractual provisions such as
price or delivery time in order to obtain additional business and maintain our
customer relationships. Any termination, decrease in orders or election not to
renew a contract by our principal customers would harm our business.

We depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, we will not be able to ship many of our products and
our business will be seriously harmed.

  We license technology that is used in our products from third parties under
agreements with a limited duration and we may not be able to maintain these
license arrangements. If we fail to maintain our license arrangements, we would
not be able to ship many of our digital

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                          RAVISENT TECHNOLOGIES INC.

entertainment products and our business would be seriously harmed. For example,
we have a license agreement with Dolby Laboratories Licensing Corporation for
the audio format that is used in all of our DVD-related products. Without this
technology, we could not ship product for DVD market. In addition, we license
encryption and decryption software technology from the Copy Control Association
(CCA), which must also be included in any DVD products we ship. The license for
the Dolby Digital technology is for a term expiring at the expiration of the
patent covered thereby with the furthest expiration date from the date of the
license. The license for the encryption and decryption technology may be
terminated by CCA at any time upon written notice. We may not be able to renew
either license. If we failed to renew either of these licenses, we would not be
able to ship products for the DVD market, and we would accordingly lose a
substantial portion of our revenues.

The loss of any of our strategic relationships would make it more difficult to
keep pace with evolving industry standards and to design products that appeal to
the marketplace

  We rely on strategic relationships, such as those with ATI Technologies Inc.,
Intel Corporation and STMicroelectronics to provide us with state of the art
technology, assist us in integrating our products with leading industry
applications and help us make use of economies of scale in manufacturing and
distribution. Through our relationships with our strategic partners, we gain
valuable insights on evolving industry standards and trends. However, we do not
have written agreements with any of our strategic partners that could ensure
these relationships will continue for a significant period of time. All of our
agreements with these partners are informal, and may be terminated by them at
any time. The loss of any one of these relationships could harm our business.

Delays in providing our products to our customers may affect how much business
we receive

  Since the product life cycle in the personal computer industry can be as short
as six to twelve months or less, if our product development efforts are not
successful or are significantly delayed, our business will be harmed. In the
past, we have failed to deliver new products, upgrades or customizations on
time, including customization projects for DVD products that are requested from
time to time by our customers. In the future, our efforts to remedy this
situation may not be successful and we may lose customers as a result. Delays in
bringing to market new products, enhancements to old products or interfaces
between existing products and new models of personal computers could be
exploited by our competitors. If we were to lose market share as a result of
lapses in our product management, our business would be harmed.

Our business model depends upon licensing our intellectual property, and if we
fail to protect our proprietary rights, our business could be harmed

  Our ability to compete depends substantially upon our internally developed
technology. We have a comprehensive program for securing and protecting rights
in patentable inventions, trademarks, trade secrets and copyrightable materials.
If we are not successful in protecting our intellectual property, our business
could be substantially harmed.

Our pending patents may never be issued, and even if issued, may provide us with
little protection

  We regard the protection of patentable inventions as important to our
business. We currently have four U.S. patent applications pending relating to
our digital video stream management technology. We co-own with
STMicroelectronics two additional patent applications and we have one pending
application under the Patent Cooperation Treaty ("PCT") based on several of the

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                          RAVISENT TECHNOLOGIES INC.

above-mentioned U.S. patent applications. However, none of our technology is
patented outside the United States. It is possible that:

  . our pending patent applications may not result in the issuance of patents;

  . our patents may not be broad enough to protect our proprietary rights;

  . any issued patent could be successfully challenged by one or more third
    parties, which could result in our loss of the right to prevent others from
    exploiting the inventions claimed in those patents;

  . current and future competitors may independently develop similar technology,
    duplicate our products or design around any of our patents; and

  . effective patent protection, if any, may not be available in every country
    in which we do business.

We rely upon trademarks, copyrights and trade secrets to protect our proprietary
rights, which are only of limited value

  We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
two pending trademark applications for the marks "RAVISENT" and "RAVISENT
Technologies". We also have an issued U.S. trademark for the mark "CineMaster,"
and have a number of pending trademark applications for "RAVISENT" in foreign
countries. Moreover, despite any precautions which we have taken:

  . laws and contractual restrictions may not be sufficient to prevent
    misappropriation of our technology or deter others from developing similar
    technologies;

  . other companies may claim common law trademark rights based upon state or
    foreign law which precede our federal registration of such marks;

  . current federal laws that prohibit software copying provide only limited
    protection from software "pirates," and effective trademark, copyright and
    trade secret protection may be unavailable or limited in certain foreign
    countries;

  . policing unauthorized use of our products and trademarks is difficult,
    expensive and time-consuming and we are unable to determine the extent to
    which piracy of our products and trademarks may occur, particularly
    overseas;

  . we have provided our source code for our products to a few of our customers
    as part of our licensing arrangements with them and the procedures and
    practices implemented under the terms of these licenses may not be
    sufficient to prevent them from exploiting the source code; and

  . the tamper-resistant copy protection codes in our software have been broken
    in the past and may not be successful in preventing unauthorized use of our
    software in the future.

We may become involved in costly and time-consuming litigation over proprietary
rights

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                          RAVISENT TECHNOLOGIES INC.

  Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software and hardware in our industry may be
increasingly subject to third party infringement claims as the number of
competitors grows and the functionality of products in different areas of the
industry overlap. Third parties may currently have, or may eventually be issued,
patents that would be infringed by our products or technology. We cannot be
certain that any of these third parties will not make a claim of infringement
against us with respect to our products and technology.

  Any litigation, brought by others or by us, could result in the expenditure of
significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement may
cause product shipment delays, require us to develop non-infringing technology
or require us to enter into royalty or license agreements even before the issue
of infringement has been decided on the merits. If any litigation were not to be
resolved in our favor, we could become subject to substantial damage claims and
be prohibited from using the technology at issue without a royalty or license
agreement. These royalty or license agreements, if required, might not be
available on acceptable terms, or at all, and could result in significant cost
and, harm our business. If a successful claim of infringement is made against us
and we cannot develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could be
significantly harmed.

We have received notices of claims that may result in litigation

  From time to time, we have received, and we expect to continue to receive,
notice of claims of infringement of other parties' proprietary rights. For
example:

  . Our digital video stream management solutions comply with industry DVD
    specifications, which incorporates technology known as MPEG-2 that governs
    the process of storing a video input in digital form. We have received
    notice from two of our largest customers that a third party with a history
    of litigating its proprietary rights and which has substantial financial
    resources has alleged that aspects of MPEG-2 technology infringe upon
    patents held by the third party. These customers may in the future seek
    compensation or indemnification from us arising out of the third party
    claims and we may be required to agree to indemnify them to secure future
    business or otherwise. Moreover, we may be required to pay license fees in
    connection with the use of the third party's technology in the future.

  . A group of companies has formed a consortium known as MPEG-LA to enforce the
    proprietary rights of other holders of patents covering essential aspects of
    MPEG-2 technology that are incorporated into our products. MPEG-LA has
    notified a number of personal computer manufacturers, including our
    customers, that patents owned by members of the consortium are infringed by
    the personal computer manufacturers in their distribution of products that
    incorporate the MPEG-2 technology. MPEG-LA has requested that these personal
    computer manufacturers pay license fees for the use of the technology
    covered by MPEG-LA patents. These personal computer manufacturers may in the
    future seek compensation or indemnification from us arising out of the MPEG-
    LA claims, and we may be required to pay license fees in connection with the
    use of MPEG-2 technology in the future.

  . Another group of companies has formed a consortium known as "6C" (formerly
    DVD Patent License Program) to enforce the proprietary rights of other
    holders of patents covering essential aspects of DVD technology that are
    incorporated into our products. 6C has notified

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                          RAVISENT TECHNOLOGIES INC.

    us, as well as a number of computer manufacturers and other companies
    manufacturing or licensing DVD-related products, including our customers,
    that patents owned by members of the consortium are infringed by products
    that incorporate the DVD technology. 6C has requested that these personal
    computer manufacturers pay license fees for using the 6C patents. We may be
    required to pay license fees in connection with the use of such DVD
    technology in our products in the future as a result of such claims.
    Further, a court could determine that we infringe any such patents and we
    would be liable for resulting damages. In addition, our customers who have
    been contacted by the 6C may in the future seek compensation or
    indemnification from us arising out of the 6C claims, and we may be required
    to pay license fees on their behalf in connection with the use of such DVD
    technology in the future.

  . A third party has asserted that the parental control features of our
    CineMaster products infringe patents held by the third party. A court could
    determine that such parental control features do infringe these patents and
    we could be liable for resulting damages. In addition, our customers could
    seek compensation or indemnification from us arising out of such third
    party's claims.

  . Another consortium of companies, commonly known as "3C", notified a number
    of DVD product manufacturers that the members of the consortium hold patents
    that are essential to DVD technology, and have requested that such companies
    pay license royalties for the use of the technology covered by the 3C
    patents. In addition, our customers may seek compensation or indemnification
    from us as a result of the 3C claims, and we may be required to pay license
    fees on their behalf in connection with the use of such DVD technology in
    the future. 3C members may in the future seek compensation or
    indemnification from us arising out of the consortium's claims.

  . A letter dated September 12, 2000 from a third party to one of our customers
    who distributes our product claims infringement of a Japanese utility model
    patent regarding Internet terminals which can be coupled to a television
    set. This third party is seeking a license agreement as a resolution. We
    have requested more time to respond and are accumulating prior art to
    invalidate the utility model patent.

  . A third party has asserted that some of our products infringe one or more of
    such third party's patents in the field of "all format decoders". The third
    party has stated that it was prepared to license the relevant patents to us
    on favorable terms. We are currently in discussions with such third party.
    The third party may seek compensation from us related to this matter. We do
    not know if this party has contacted any of our customers regarding this
    matter. If so, our customers may in the future seek compensation or
    indemnification from us arising out of the third party's claims. No claim
    for such payments has been made to date. We have not determined whether and
    to what extent that the patents held by the third party are valid and
    whether and to what extent our products are covered by their patents.

We may not be able to successfully make acquisitions of or investments in other
companies

  We have very limited experience in acquiring or making investments in
companies, technologies or services. From time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses,
products or services. In the future, we may make acquisitions or investments in
other companies, products or technologies. Acquisitions in our industry are
particularly difficult to assess because of the rapidly changing technological
standards in our industry. If we make any acquisitions, we will be required to
assimilate the personnel, operations

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and products of the acquired businesses and train, retain and motivate key
personnel from the acquired businesses. However, the key personnel of the
acquired company may decide not to work for us. Moreover, acquisitions may cause
disruptions in our operations and divert management's attention away from day-
to-day operations, which could impair our relationships with our current
employees, customers and strategic partners. We may be unable to maintain
uniform standards, controls, procedures and policies if we fail in our efforts
to assimilate acquired businesses, which could result in a material adverse
effect on our business.

We are dependent upon our key management for our future success, and few of our
managers are obligated to stay with us

  Our success depends on the efforts and abilities of our senior management and
certain other key personnel. Many of our key employees are employed at will. If
any of these or other key employees left or was seriously injured and unable to
work and we were unable to find a qualified replacement, then our business could
be harmed. We have recently hired new managers and may hire key management
personnel as needed. We may not be able to successfully assimilate our recently
hired managers or to hire qualified key management personnel to replace them.

We may not be able to hire and retain qualified employees, which would impair
our ability to grow

  As a result of our asset sales to STMicroelectronics and Phoenix Technologies,
our workforce has been reduced by approximately 89 employees, including 70
employees in our research and development department and 9 employees in our
sales and marketing department. Although our need for employees has been reduced
as a result of the disposition of our consumer electronics business and our
Internet appliance business, we have vacancies in several positions in our
research and development group. Competition for these individuals is intense,
and we may not be able to attract, assimilate or retain additional highly
qualified personnel in the future. Hiring qualified personnel, particularly
sales, marketing, engineering and product management personnel, is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of the digital video and audio
stream management industry. In addition, we are headquartered in Malvern,
Pennsylvania and we maintain operations in San Jose, California. We have in the
past and expect in the future to face difficulties locating qualified personnel
in these locations. We have had, and expect to continue having greater
difficulty attracting such personnel with equity incentives as a public company
than we did as a privately held company.

We may be subject to product returns, product liability claims and reduced sales
because of defects in our products

  Our products are very complex and frequently contain undetected errors. The
likelihood of errors is higher when a new product is introduced or when new
versions or enhancements are released. Errors may also arise as a result of
defects in the products into which our products are incorporated. Despite our
extensive quality assurance process, we shipped Internet appliance products to
customers who claimed such products were defective. We subsequently sold our
Internet appliance business to Phoenix Technologies Ltd. in March 2001. In our
Cinemaster based products, we have discovered errors, or "bugs," in our products
after their commercial shipment and have worked with our customers to
successfully fix such "bugs." Despite our quality assurance process and that of
our customers, defects and errors may be found in new products or in new
versions or enhancements of existing products after commercial shipment has
begun. We may be required to devote significant financial resources and
personnel to correct any

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defects. Known or unknown errors or defects that affect the operation of our
products could result in the following, any of which could harm our business:

  . delay or loss of revenues;

  . although we have not lost a customer due to defects, it is foreseeable that
    a customer could cancel a contract due to defects;

  . diversion of development resources;

  . damage to our reputation;

  . failure of our products to achieve market acceptance;

  . increased service and warranty costs; and

  . litigation costs.

  Although some of our licenses with customers contain provisions designed to
limit our exposure to potential product liability claims, these contractual
limitations on liability may not be enforceable. In addition, our product
liability insurance may not be adequate to cover our losses in the event of a
product liability claim resulting from defects in our products and may not be
available to us in the future.

Our business is subject to risks from international operations such as legal
uncertainty, tariffs and trade barriers and political and economic instability

  In the quarter ended September 30, 2001, we derived approximately 71% of our
revenues from sales to foreign companies, and we may derive an increasing amount
of our revenues from sales outside North America in the future. We have limited
experience in marketing and distributing our products internationally and do not
have local offices or sales representatives in many foreign countries. In
addition, there are many risks inherent in doing business internationally
including, among others:

  . legal uncertainty regarding liability;

  . language barriers in business discussions;

  . cultural differences in the negotiation of contracts and conflict
    resolution;

  . time zone differences;

  . tariffs, trade barriers and other regulatory barriers;

  . problems in collecting accounts receivable;

  . political and economic instability;

  . changes in diplomatic and trade relationships;

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                          RAVISENT TECHNOLOGIES INC.

     .  seasonal reductions in business activity;

     .  potentially adverse tax consequences;

     .  the impact of recessions in economies outside the United States; and

     .  complexity and unexpected changes in local laws and regulations.

     Our licensees are subject to many of the risks described above with respect
to their manufacturing or end-user customers. Currently, all of our
international sales are denominated in U.S. dollars; therefore, a strengthening
of the dollar could make our products less competitive in foreign markets. We do
not use derivative instruments to hedge foreign exchange risk. In the future, we
may conduct sales in local currencies, in which case, changes in exchange rates
could adversely affect our operating results. In addition, if we conduct sales
in local currencies, we may engage in hedging activities, which may not be
successful and could expose us to additional risks.

It may be difficult to raise needed capital in the future, which could
significantly harm our business

     We may require substantial additional capital to finance our future growth
and fund our ongoing research and development activities beyond 2001. Our
capital requirements will depend on many factors, including:

     .  the results of our search for strategic alternatives;

     .  acceptance of and demand for our products;

     .  the number and timing of acquisitions and the cost of such acquisitions,
        including, the currently estimated cost to complete the acquisition and
        fund the eMation operations pending closing of the acquisition under the
        share purchase agreement. RAVISENT and eMation currently estimate that
        they will incur expenses of approximately $3.4 million to complete the
        eMation acquisition. Pursuant to a bridge loan facility, we have
        provided eMation with a $2.5 million bridge loan and have agreed to
        provide them with an additional $2.5 million bridge loan;

     .  the capital requirements of eMation after the eMation acquisition is
        completed

     .  the costs of developing new products;

     .  the costs associated with our expansion; and

     .  the extent to which we invest in new technology and research and
        development projects.

     Although our current business plan does not foresee the need for further
financing to fund our operations for the next two years, due to risks and
uncertainties in the market place as well as a potential of pursuing further
acquisitions, we may need to raise additional capital. Additionally, to the
extent that the proceeds from our initial public offering and the dispositions
of our consumer electronics and Internet appliance businesses are exhausted, and
if our existing sources of cash and cash flow from operations, if any, are
insufficient to fund our activities, we may need to raise additional funds. If
we issue additional stock to raise capital, your percentage ownership in

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                          RAVISENT TECHNOLOGIES INC.

RAVISENT would be reduced. Additional financing may not be available when needed
and, if such financing is available, it may not be available on terms favorable
to us.

Because of their significant stock ownership, our officers and directors can
exert significant control over our future direction

  As of September 30, 2001, our officers, directors and entities affiliated with
them, in the aggregate, beneficially owned approximately 2.6 million shares, or
13.6% of our outstanding common stock. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors, the approval of mergers or
other business combination transactions or a sale of all or substantially all of
our assets.

Certain provisions of our certificate of incorporation and by-laws make changes
of control difficult even if they would be beneficial to shareholders

  The board of directors has the authority without any further vote or action on
the part of the stockholders to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions of
the preferred stock. This preferred stock, if it is ever issued, may have
preference over and harm the rights of the holders of common stock. Although the
issuance of this preferred stock will provide us with flexibility in connection
with possible acquisitions and other corporate purposes, this issuance may make
it more difficult for a third party to acquire a majority of our outstanding
voting stock. We currently have no plans to issue preferred stock.

  Our certificate of incorporation and by-laws include provisions that may have
the effect of deterring an unsolicited offer to purchase our stock. These
provisions, coupled with the provisions of the Delaware General Corporation Law,
may delay or impede a merger, tender offer or proxy contest involving us.
Furthermore, our board of directors is divided into three classes, only one of
which is elected each year. Directors are only capable of being removed by the
affirmative vote of 66 2/3% or greater of all classes of voting stock. These
factors may further delay or prevent a change of control.

Our revenues are dependent upon acceptance of products that incorporate our
technology only in the personal computer industry

  We rely on the personal computer industry, which has risks and uncertainties
that are beyond our control.

  The personal computer industry is presently the only market for our digital
entertainment solutions. In addition, we are subject to a non-competition
agreement with STMicroelectronics pursuant to which we have agreed to not
compete in significant aspects of the consumer electronics market until March
2006. As a result, our results of operations will depend almost entirely on
consumer acceptance of the personal computer. Our dependence on these industries
involves several risks and uncertainties, including:

  . whether semiconductor manufacturers developing silicon devices for personal
    computer manufacturers will design our digital solutions into their devices
    and successfully introduce these devices;

  . changes in consumer requirements and preferences for personal computers;

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                          RAVISENT TECHNOLOGIES INC.

  . the small number of product manufacturers in the personal computer industry
    and the short product life cycles which can be six months or less; and

  . the difficulty in predicting the level of consumer interest in and
    acceptance of many digital product applications employing our products that
    incorporate our technology.

  Any general economic, business or industry conditions that cause customers or
potential customers to reduce or delay their investments in personal computer
systems could have a negative effect on our strength and profitability. For
example, a softening of demand for computer systems may result in decreased
revenues (or at least declining revenue growth rates) for computer manufacturers
in general which could have a corresponding negative impact on our sales. In
turn, a decrease in our sales could result in pricing pressures for our
products, which could have a negative effect on our revenues and profitability.
Recently, personal computer manufacturers have experienced a slowdown in sales
of personal computers, which may result in a material adverse affect on the
sales of our products.

We are subject to a non-competition agreement prohibiting us from selling
products in significant aspects of the consumer electronics market

  Our agreement with STMicroelectronics, pursuant to which we sold our consumer
electronics market, provides that we may not compete in significant aspects of
the consumer electronics business until March 2006. Traditional consumer
electronics manufacturers have introduced stand-alone Internet access devices
for the television. Recently, personal computer manufacturers have announced
major initiatives in providing their own versions of stand-alone Internet
devices in an effort to combat the consumer electronic manufacturers
initiatives. An increase in the demand for certain consumer electronics products
may result in a corresponding decrease in the demand for personal computer
products employing our technology which may have a material adverse effect on
our business and financial condition.

We currently depend upon demand for digital entertainment products, which may
not be sustained.

  Our success currently depends upon continued demand for digital entertainment
products in the personal computer market. All of our revenues in 1998 and 1999
resulted from sales of digital entertainment products. In 2000 a significant
portion of our revenues was derived from sales of digital entertainment
products. In addition to the risks inherent in the personal computer industry,
the market for digital entertainment products also contains risk and
uncertainties, including:

  . the development and marketing of content by third party content providers
    for end-user systems such as desktop computers in a format compatible with
    our digital solutions; and

  . the potential for declining demand for DVD solutions in lower price personal
    computers.

  Factors negatively affecting the personal computer industry in general or the
DVD market in particular could harm our business. Moreover, to the extent that
the performance, functionality, price and power characteristics of our digital
solutions fail to satisfy customers who have a critical need for specific
digital applications, the use of our digital solutions could become confined to
a limited segment of these industries.

Competition in our markets is likely to continue to increase and could harm our
business

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                          RAVISENT TECHNOLOGIES INC.

  The digital media market is intensely competitive, highly fragmented and
rapidly changing and is characterized by short product life cycles and price
erosion. Our principal competitors in the software-based digital solution market
are Mediamatics, Inc. (a subsidiary of National Semiconductor, Inc.), MGI
Software Corp., Intervideo Inc. and RealNetworks, Inc. Our principal competitors
in the hardware-based digital solution market are Sigma Designs, Inc. and Zoran
Corporation. We also compete against several smaller companies and with the
internal research and development departments of other software companies as
well as those of personal computer, peripherals, and semiconductor manufacturers
who are in the market for specific digital video or audio software applications.
Many of our competitors have a larger customer base, greater name recognition,
greater financial, technical, managerial and other resources than us. Numerous
other major personal computer manufacturers, software developers and other
companies are focusing significant resources on developing and marketing
products and services that will compete with our CineMaster products. Companies
such as Liberate Technologies, Spyglass, Inc., Planetweb, Inc. and WebTV also
compete indirectly with us by providing digital video and other solutions to
Internet appliance manufacturers who compete with our customers or personal
computer manufacturers. At least two semiconductor manufacturers, including C-
Cube Microsystems and Zoran, are positioning their products as offering
hardware- based digital video and audio management capabilities and marketing
such products as equal or superior to our CineMaster products. In the future,
operating system providers with a larger established customer base, such as
Microsoft, may enter the digital video or audio stream management markets by
building video or audio stream management applications into their operating
systems. For example, Microsoft currently markets a basic MPEG-1 compliant
digital solution that is bundled into its operating system, which is used by a
substantial number of personal computer users. If Microsoft were to successfully
develop or license a DVD-compliant digital video solution and incorporate the
solution into its operating system, our revenues could be substantially harmed.

  We anticipate continued growth and competition in the personal computer
industry and the entrance of new competitors into our market, and accordingly,
the market for our products will remain intensely competitive. We expect that
competition will increase in the near term and that our primary long-term
competitors may not yet have entered the market. Our future competitors may have
significantly more personnel or greater financial, technical, marketing and
other resources than either we or our current competitors do. Furthermore, our
current and future competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements than we can. Also,
future competitors may have greater name recognition and more extensive customer
bases that they can leverage. Increased competition could result in price
reductions, fewer customer orders, reduced gross profit margins and loss of
market share, any of which could harm our business.

If we fail to manage technological change, respond to evolving industry
standards or enhance our products' interoperability with the products of our
customers, demand for our products will decrease and our business will suffer

  Future versions of software and hardware platforms employing new technologies
or the emergence of new industry standards could render our products obsolete or
uncompetitive. The market for digital video and audio solutions is characterized
by rapid technological change and evolving industry standards, such as standards
for DVD audio, DVD random access memory and DTV as well as other digital
entertainment applications. If we fail to respond to evolving industry
standards, our products could rapidly become obsolete, which would harm our
business. If the characteristics of our digital solutions are not compatible
with the requirements of specific system

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                          RAVISENT TECHNOLOGIES INC.

or program applications, the likelihood that our customers will design our
products into their systems and devices will decrease and our business will be
harmed.

We may not be able to respond to rapidly changing consumer preferences

  Our results of operations will depend on the extent to which our products are
incorporated into the products of leading personal computer, peripherals and
semiconductor manufacturers. Their willingness to incorporate our products
depends upon whether we succeed in developing enhancements and new generations
of our software and hardware that satisfy consumer preferences in their markets
and introducing these new technologies to the marketplace in a timely manner. We
must constantly modify and improve our products to keep pace with changing
consumer preferences. For example, DVD drives became widespread on new personal
computers in the last two years. It is particularly difficult to keep pace with
changing consumer preferences in the personal computer industry as a result of a
number of factors, including:

  .  the difficulty of anticipating and responding in a timely manner to the
     latest consumer trends and requirements;

  .  the introduction by our competitors of new products embodying popular new
     technologies or features that appeal to consumers; and

  .  the significant investment that is often required before commercial
     viability is achieved to market a new feature or function.

  Any failure by us to adequately address these risks could render our existing
digital solutions obsolete and could harm our business. In addition, we may not
have the financial and other resources necessary to develop any enhancements or
new generations of technology that generate revenues in excess of the costs of
development.

We face risks from the uncertainties of any future governmental regulation

  We are not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally.
However, due to the increasing popularity and use of digital delivery mediums,
it is possible that future laws and regulations may be adopted that regulate the
digital media market or other markets in which our products are sold. Future
regulatory measures may include, among other things:

  .  pricing;

  .  content;

  .  copyrights;

  .  export controls (particularly regarding data encryption);

  .  distribution; and

  .  characteristics and quality of products and services.

  The growth and development of the digital media market may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies conducting

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                          RAVISENT TECHNOLOGIES INC.

business in this segment. The adoption of any additional laws or regulations may
decrease the expansion of this market and harm our business. Our business could
be harmed by any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the digital
media market.

           Risks Related to Our Proposed Acquisition of eMation Ltd.

On June 28, 2001, we entered into an agreement to acquire all of the issued
share capital of eMation Ltd.  For a description of our proposed acquisition of
eMation, please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Overview and Recent Events."  Our proposed acquisiton
of eMation is subject to numerous risks, some of which are described below.

Our operations and eMation's operations may be adversely affected by the eMation
acquisition

RAVISENT and eMation will be subject to various risks following the consummation
of the eMation acquisition, including:

  .  the possibility that the business cultures of the two companies may not
     mesh;

  .  interruption of the operations of the combined companies;

  .  the possibility that management may be distracted from regular business
     concerns by the need to integrate operations or operate the businesses
     separately which may result in interruption of the operations of the
     combined companies;

  .  problems in retaining employees;

  .  challenges in retaining customers; and

  .  anticipated and unanticipated costs relating to additional administrative
     or operating expenses of each business. These costs include our funding of
     the eMation operations pursuant to a bridge loan facility in the amount of
     up to $5.0 million that is described under the heading "Management's
     Discussion and Analysis of Financial Condition and Results of Operations."

We currently estimate that collectively we and eMation will incur expenses of
$3.4 million to complete the eMation acquisition ($2.4 million of which is
currently estimated to be incurred by us and $1.0 million of which is currently
estimated to be incurred by eMation). These combined estimated costs represent
approximately six percent of our September 30, 2001 cash balance.

These and other factors could materially and adversely affect both our and
eMation's combined business and operating results.

Failure to complete the eMation acquisition could negatively impact our future
businesses and operations

There are no assurances that the eMation acquisition will be consummated. In
addition to the approval of our stockholders, several other conditions to the
closing of the eMation acquisition must be met and the failure of any one
condition may prevent the consummation of the eMation acquisition. If the
eMation acquisition is not completed for any reason, we may be subject to a
number of material risks, including the costs incurred by us related to the
eMation acquisition, such as legal, accounting and a portion of financial
advisor fees, which must be paid even if the eMation acquisition is not
completed.

Announcement of the eMation acquisition may delay or defer customer and supplier
decisions concerning us and eMation, which may negatively affect our business
following the eMation acquisition

Our customers and suppliers and those of eMation, in response to the
announcement of the eMation acquisition, may delay or defer decisions concerning
them. In addition, our customers or channel partners or those of eMation may
seek to change existing agreements they have with either company as a result of
the eMation acquisition. Any delay or deferral in those decisions or changes in
company contracts by our customers or suppliers and those of eMation could have
a material adverse effect on our respective business, regardless of whether the
eMation acquisition is ultimately completed.

Similarly, current and prospective employees may experience uncertainty about
their future roles with either company until our strategies with regard to each
other are announced or executed. This may adversely affect our and eMation's
ability to attract and retain key management, sales, marketing and technical
personnel.

If the eMation acquisition is completed, we will have changed our business focus
and may not be successful in operating the device relationship management
business

eMation's device relationship management business will present different
challenges from those presented by our personal computer business. We cannot
assure that our management team will be successful in managing this new
business. If we are unable to successfully operate the device relationship
management business, our business and operating results will be adversely
affected.

The market price of our common stock may decrease after the eMation acquisition
is consummated, which could result in our common stock being de-listed

The market price of our common stock is by nature subject to the general price
fluctuations in the market for publicly traded equity securities and has
experienced significant volatility. The market price of our common stock may
decline as a result of the eMation acquisition if:

  .  our integration with eMation is unsuccessful;

  .  we are unable to execute on our business plan following the acquisition of
     eMation; or

  .  the effect of the eMation acquisition on our financial results is otherwise
     not consistent with the expectations of financial or industry analysts or
     investors.

The market price of our common stock could also decline as a result of factors
related to the eMation acquisition which may currently be unforeseen.

Our common stock is currently traded on the Nasdaq National Market. Under
Nasdaq's listing maintenance standards, if the closing bid price of our common
stock is under $1.00 per share for 30 consecutive trading days, Nasdaq will
notify us that we may be de-listed from the Nasdaq National Market. If the
closing bid price of our common stock does not thereafter regain compliance for
a minimum of 10 consecutive trading days during the 90 days following
notification by Nasdaq, Nasdaq may de-list our common stock from trading on the
Nasdaq National Market. There can be no assurance that our common stock will
remain eligible for trading on the Nasdaq National Market. In addition, if our
stock is de-listed, you would not be able to sell our common stock on the Nasdaq
National Market and your ability to sell our common stock at all would be
severely, if not completely, limited. our common stock has reached a high of
$52.00 and traded as low as $1.22 through September 30, 2001.

Failure to retain key employees could diminish the anticipated benefits of the
eMation acquisition

The success of the eMation acquisition will depend in part on the retention of
personnel critical to the business and operations of the combined company due
to, for example, their technical skills or management expertise. We have taken
steps to retain the management personnel of eMation. However, we cannot assure
that we will be able to continue to retain such individuals.

Employees may experience uncertainty about their future role with us and eMation
until strategies with regard to eMation's employees are announced or executed.
We have different corporate culture than eMation and eMation's employees may not
want to work for us. In addition, competitors may recruit employees during our
integration of eMation, as is common in high technology mergers and
acquisitions.

If we and eMation are unable to retain personnel that are critical to the
successful integration of the companies, both companies could face disruptions
to operations, loss of key information, expertise or know-how and unanticipated
additional recruitment and training costs. In addition, the loss of key
personnel could diminish the anticipated benefits of the eMation acquisition.

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                          RAVISENT TECHNOLOGIES INC.

PART II: OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

Legal Proceedings

On or about August 10, 2000, Corum Group, Ltd. filed an action against us and
Cinax Designs Inc. in the United States District Court for the Western District
of Washington (No. C00-132D). Corum, a business consultant, alleged that it had
an agreement with Cinax whereby Cinax would pay Corum an 8% "transaction fee" in
the event Corum located a purchaser for Cinax. We acquired Cinax by agreement
dated as of July 13, 2000 for compensation of $3.5 million in cash and an
aggregate of 825,000 shares of RAVISENT common stock and no par, non- voting
exchangeable preferred stock of Ravisent British Columbia Inc., an indirectly
owned subsidiary, which preferred stock is exchangeable, on a one- for-one
basis, into shares of RAVISENT common stock. In the complaint Corum alleged that
it introduced us to Cinax and that it was therefore entitled to $281,362 and
66,000 shares of RAVISENT common stock. As part of our acquisition of Cinax, the
shareholders of Cinax agreed to indemnify us for 50% of any liability stemming
from the Corum claim and an aggregate of 53,500 shares of RAVISENT common stock
and non-voting exchangeable preferred stock of Ravisent British Columbia Inc.
have been placed in escrow to secure this indemnification obligation. On April
17, 2001, we entered into a settlement and release agreement with Corum and the
action was subsequently dismissed. Pursuant to the settlement agreement, we have
paid $110,000 and issued 140,000 shares of RAVISENT common stock to Corum.

  Between February and April 2000, eleven class action lawsuits were filed
against us and certain of our current and former officers and directors in the
United States District Court for the Eastern District of Pennsylvania. On May
25, 2000, the cases were consolidated under Civil Action No. 00-CV-1014, and
entitled "In re RAVISENT Technologies Inc. Securities Litigation." Pursuant to
the court's consolidation order, a consolidated and amended class action
complaint was filed on June 14, 2000 with an alleged class period of July 15,
1999 through April 27, 2000. This complaint alleges violations of the federal
securities laws, specifically Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5
promulgated thereunder and seek unspecified damages on behalf of a purported
class of purchasers of our stock during the period stated above. On July 3,
2000, we filed a motion to dismiss the consolidated and amended class action
complaint. The motion is presently fully briefed and the parties are awaiting a
hearing date to be set for the motion. Certain of our employees and certain
holders of 5% or more of RAVISENT common stock are members of the putative
classes alleged in these actions and therefore may have interests adverse to us
with respect to the alleged claims in these actions. We believe that such
lawsuits or claims are without merit and that we have meritorious defenses to
the actions. We plan to vigorously defend the litigation. However, failure to
successfully defend these actions could substantially harm our results of
operations, liquidity and financial condition.

  In April 2001, a third party who licenses software to us filed a lawsuit
against us in California. The dispute arose out of a contract whereby we
licensed software from this third party for use with the eSurfer browser bundled
with our Internet set-top box assets sold to Phoenix Technologies in March 2001.
The third party claimed that there were fees due and owing under the contract.
We and the third party entered into a confidential settlement agreement in July
2001 and the case has been dismissed. The amount of the settlement was fully
accrued as of September 30, 2001.

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                          RAVISENT TECHNOLOGIES INC.

  From time to time, we have received, and expect to continue to receive,
notices of claims of infringement of other parties' proprietary rights and other
claims in the ordinary course of our business. See "RISK FACTORS--We may become
involved in costly and time consuming litigation over proprietary rights."


Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)   CHANGES IN SECURITIES: NONE


(b)   DIVIDENDS:

We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant. Moreover, pursuant to
agreements with our lender, we are prohibited from declaring or paying dividends
without the prior written consent of the lender. See "Management's Discussion
and Analysis of Financial Condition and Results the of Operations-Liquidity and
Capital Resources."

(c)   USE OF PROCEEDS

  Not applicable

Item 3: DEFAULTS UPON SENIOR SECURITIES

  None

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None during the period ending September 30, 2001. Please See Item 5.

Item 5. OTHER INFORMATION

  On October 30, 2001 the Company filed a proxy statement for the following
purposes at its annual meeting of stockholders to be held December 5, 2001:

1. TO CONSIDER AND VOTE UPON A PROPOSAL TO ISSUE UP TO 8,000,000 SHARES OF
RAVISENT COMMON STOCK FOR THE PURCHASE OF ALL OF THE ISSUED SHARE CAPITAL OF
EMATION LTD., A PRIVATE COMPANY ORGANIZED UNDER THE LAWS OF ISRAEL, AND ISSUE UP
TO 1,550,000 SHARES OF RAVISENT COMMON STOCK UPON THE EXERCISE OF EMATION
OPTIONS TO BE ASSUMED BY RAVISENT, AS CONTEMPLATED BY THE SHARE PURCHASE
AGREEMENT DATED AS OF JUNE 27, 2001 AND AMENDED AND RESTATED AS OF JULY 27, 2001
AND OCTOBER 5, 2001 AMONG RAVISENT, EMATION AND CERTAIN OF EMATION'S
SHAREHOLDERS;

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                          RAVISENT TECHNOLOGIES INC.

2. TO ELECT TWO DIRECTORS TO SERVE FOR THREE-YEAR TERMS ENDING IN THE YEAR
2004 OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED;

3. TO RATIFY THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 2001; AND

4. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.

Item 6: Exhibits and Reports on Form 8-K

 (a) Exhibits

Exhibit
Number          Exhibit Title
-------         ----------------------------------------------------------------
10.35+          Employment Agreement, as amended, dated August 6, 2001 by and
                between RAVISENT and Robert M. Russell, Jr.
  +  Compensation plans and arrangements for executives and others.

 (b) The following reports were filed on Form 8K during this period:

       On July 6, 2001 the Registrant filed a Form 8-K to announce it intentions
of acquiring all of the outstanding capital stock of eMation Ltd. The report
contained the Company's press release dated June 28, 2001.

       On August 15, 2001 the Company filed a Form 8-K for the announcement of
its appointment of Robert M. Russell as CEO and Chairman effective immediately.
The report contained the Company's press release dated August 15, 2001.

       On September 28, 2001 the Company filed a Form 8-K for the announcement
of its commencement of a program to repurchase up to $10 million worth of its
outstanding shares of common stock in the open market over the next 12 months at
the discretion of management. The report contained the Company's press release
dated September 27, 2001.

SIGNATURES

 Pursuant to the requirements of Section 13 or 15(d) the Securities Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Malvern,
Commonwealth of Pennsylvania on this 14th day of November 2001.

November 14, 2001      RAVISENT TECHNOLOGIES INC.


   /s/  Thomas J. Fogarty
       -----------------
       Thomas J. Fogarty
        Senior Vice President and Chief Financial Officer

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